The market is topsy-turvy right now.
Seemingly bad economic news is good… And vice versa.
It’s like we fell into a rabbit hole and ended up in Wonderland.
If you’re feeling like Alice right now – where up is down and down is up – I can’t blame you.
In today’s essay, I’ll help you make sense of what’s happening in the markets… and share details of a strategy we’re using to take advantage of it.
Welcome to Wonderland
The ISM Manufacturing Purchasing Managers Index (PMI) measures the strength of the U.S. manufacturing sector. When the index dips below 50, it signals a decline in manufacturing activity.
On October 3, the index came in at 50.9, well below Wall Street’s forecast of 52.4. That suggests the U.S. manufacturing sector is slowing down… Not a good sign.
The next day, we got more bad news. The U.S. Department of Labor announced job openings came in at 10.1 million… That’s 10% lower than the 11.2 million job openings in August. And when business slows, job openings dry up.
Again, not a good sign.
But despite this “bad” economic news, the market bounced. The S&P 500 roared higher, rising 6% over two days. You’d have to go all the way back to the 2020 pandemic bottom to see a sharper rise over two days.
That’s what I mean by “bad” economic news turning out to be “good” market news. But things got crazier later in the week.
The next three days delivered relatively strong economic news.
On October 5, human resources management firm ADP released its monthly jobs report. The report showed the private sector added 208,000 jobs in September.
More good news followed the same day. The Institute of Supply Management (ISM) showed growth in the U.S. service sector was better than expected.
And on that Friday, the long-awaited payrolls report showed 263,000 jobs added in September – higher than expected – and the unemployment rate dropped to 3.5%.
Despite this “good” economic news, investors panicked and sold.
The S&P 500 dropped 3.3% during the week’s second half – giving back nearly all of its two-day gains.
We saw another topsy-turvy market last week… showing us that we’re not out of Wonderland yet.
On Thursday, the CPI report showed inflation was up 8.2% in September. That’s slightly down from the 8.3% reading in August.
However, the bad news came from the Core CPI, which excludes volatile categories like food and energy prices. It rose by 6.6% in September, its highest rate of growth in 40 years.
This is a clear sign that prices among a broad category of goods and services like rent, medical care, and education remain on the rise.
This extreme Core CPI print solidifies another 75-basis point rate hike by the Federal Reserve next month to contain out-of-control inflation. And when the Fed raises rates, the market typically tanks.
However, despite the high reading, the market actually bounced 2.6% on Thursday.
But reality sank in by Friday when the market erased much of the previous day’s gains on fears of more rate hikes.
The volatility continued into this week… with stocks soaring on Monday ahead of earnings reports.
So what’s going on? Why is good economic news bad for the market… and bad economic news good? Why are we seeing such wild swings on a daily basis?
It all has to do with inflation.
Inflation Is the Culprit
As we explained above, the rate of inflation of core goods and services is sitting at multi-decade highs… with prices in September soaring at an annualized rate of 6.6%.
To cool the economy and rein in inflation, the Fed is raising interest rates.
Investors saw the “bad” economic news at the start of October as a sign that the economy was cooling down. They believed it would force the Fed to pivot from a hawkish policy of interest rate hikes to a more dovish policy of interest pauses or cuts.
When the Fed pauses or cuts rates, stocks generally rally. And when the Fed raises rates, stocks generally fall.
When interest rates rise, it becomes more difficult for companies to raise capital to grow their business. In addition, valuations and share prices are crushed as higher rates result in a lower current value of a company’s future cash flows.
The opposite is true when interest rates are cut. Lower interest rates allow companies to finance their growth at lower costs. While those lower rates result in a higher current value of those future cash flows – leading to higher valuations and share prices.
That’s why the market bounced on “bad” economic news but dropped on “good” economic news.
Investors just don’t know what to make of things. And when investors are confused, volatility increases, creating an “Anomaly Window” in the markets.
Turn the Chaos in Your Favor
If you’re not familiar, “Anomaly Windows” are brief periods in the markets where the normal rules of investing no longer apply…
These windows happen every few years, and they’re a rare chance to pull life-changing crypto-like gains from boring blue-chip stocks.
In recent Anomaly Windows, blue-chips like Coca-Cola, Whirlpool, and Caterpillar saw gains of 1,050%, 1,174%, and 1,700%, respectively… all in 30 days or less.
And in the months ahead, we’re going to experience an Anomaly Window of epic proportions… one that’ll give investors a shot at 30 years of S&P 500 gains in about 30 days.
But you’ll need to prepare for it ahead of time… because once the rest of the market catches on, the biggest gains will be off the table.
That’s why Daily editor Teeka Tiwari is holding an urgent event on Wednesday, October 26, at 8 p.m. ET to tell you all about it.
He’s calling it Retirement Recaptured: 30 Years of Wealth in the Next 30 Days, and everyone that attends will learn what this Anomaly Window is… how it works… and how to potentially recapture 30 years of wealth in 30 days.
You’ll even get the name of Teeka’s top 3 stocks to target for maximum potential gains.
You can reserve your free spot right here.
Look, at PBRG, we know that this year’s upside-down market “Wonderland” has been difficult to navigate…
Inflation is at record highs… The S&P 500 and Nasdaq are the lowest they’ve been since the pandemic… And the Fed is poised to hike rates and push us further into recession.
So this is your chance to turn that chaos in your favor… and end the year wealthier than you went in.
Click here to join Teeka next Wednesday, October 26, at 8 p.m. ET… This event is free to attend, but you must reserve your spot as soon as possible.
Analyst, Palm Beach Daily