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Market Update: PPI Numbers

Market Update: PPI Numbers

October 12, 2022
Reddit "gurus" have been wrong every step of the way, yet their followers continue to invest based on these "gurus’" calls. Yesterday was no different.
Talking bobbleheads were confidently predicting that PPI would be better than expectations, and the stock market would run up.
PPI came hotter than expected.
Here are the details:
Headline CPI came at 0.4% vs. 0.2% consensus.
Core PPI came at 0.3% vs 0.3% consensus.
Now, what is the Reddit crowd doing as they are sitting on very large unrealized losses? They are buying again in the hope that CPI's number will be better than expected.
None of it makes sense but you have to trade the market you get. Wishing for a rational market is a fool’s errand.
The bobbleheads talk about the “DOUBLE BOTTOM” and are using that narrative to persuade their followers to buy stocks.
The market needs to penetrate the next level of support (-1-3% off current levels) to at least temporarily void gurus’ narrative to buy stocks. Once this happens followers will either flood the market with buying to get at further discount on the same hopes of market rebound OR switch to cash and flood the market with panic selling.
From an institutional level, it will now all come down to the CPI number and earnings over the coming weeks. Our expectation is that Wall Street’s earnings estimates are too high with increasing unemployment, slowing consumer spending, and quantitative tightening from fiscal policy.
However, the first two earnings are stellar.
Pepsi (PEP) reported stellar earnings.
LVMH (LVMUY), the owner of Louis Vuitton and Christian Dior, also reported stellar earnings as the wealthy continue to spend on luxury goods.
During times of volatility (or recession) core staples such as Pepsi (PEP), Coke (KO), Proctor and Gamble (PG), and Walmart (WMT) tend to be less volatile after contraction is priced in and have decent dividends which can offset volatility. Basket portfolios like the ETF XLP can be an alternative to invest in all of these companies in a diversified/risk-managed way.
If you have questions about how you can implement some risk-managed strategies, let's talk! Happy to help. Until next time.