Sideways?

Now, what are the common measures of inflation? Super Core CPI is a fancy new term now given inflation in Services is the stickest among all sectors...

1. CPI - Including food and energy, but with less weighting starting January 2023.

2. Core CPI - excluding food and energy.

3. Super Core CPI - excluding food, energy, goods, and shelter (a.k.a core services ex-shelter) with Services alone (including transportation, medical care, education, communication, recreation, water/sewer/trash collection, and other household and personal services)

4. PCE 

Who's driving the spending, Consumers or Gov't? 

GDP will go with Consumer spending as Gov't spending is less than one-third of consumer spending since 2000.

The question is when the consumers will lose their spending power or will they ever lose their spending power given the consumers have built up a cash buffer since early 2020.

The puzzling piece - Common sense says there are no endless savings to support this level of spending or salary increase - and time will tell. I think unless the unemployment rate goes up, there's no way inflation will come down. But given the "structural change to the labor force post-COVID" that Fed coined, I don't know if the unemployment rate will go down significantly in the Service sector. 

Another common sense tells me, in order for the market to go up, it has to go down at some point. In order for the Fed rates to come down, it has to go up before it calls a pause. 

Thinking, not forecasting - Fed's still saying no rate cut till the end of this year; and the 60th presidential election is next year, I think it is hard for the market to make up its mind. The market will be volatile in these 2 years with plenty of divergent market forecasts. We all see the market just couldn't make up its mind and S&P has the biggest intra-day trading swings but going sideways. 

The opportunity - All in all, I think we will need to watch the market closely, it's neither the bear nor the bull that can take the regime any time soon. It could be possible that the market will be going sideways in 2023 and 2024 with a lot of volatility (intra-year ups and downs). This is longer than what the street is expecting as this is a world of impatience. Our opportunity will come, but we need patience and a deep understanding of the micro to seize it when it presents itself.

Reference/inspired by Liz's blog post: https://www.sofi.com/article/investment-strategy/liz-looks-at-measurement-matters/