It Feels Like Inflation

Last night’s post on the US stock market ended as follows:
‘As far as the Fed and its puny rate hikes are concerned, that is irrelevant. This market is flipping them the bird. Markets can rise a long way before a rate hike regime finally kills them. It feels like inflation folks.’
This prompted a question from an NFTRH subscriber about what markets would benefit, and in what differing ways would they benefit if an inflationary phase comes to dominate? That is a far reaching question and a difficult one as well, because inflation’s effects have a way of being unpredictable (how many would have answered ‘US stock market’ in the spring of 2011 to the question ‘where will the post-crisis inflation to date manifest on this cycle’?).
Last weekend, in an NFTRH 396 excerpt we talked about Applied Materials stellar quarterly report and what it might mean for the economy, the Fed, the gold sector and most of all the idea of an inflationary backdrop becoming more readily apparent (2003-2007 Greenspan style).
‘SOX-SPX above and SOX-NDX below are still each in post-2012 ‘leadership abdication’ mode, technically speaking. If that changes and the Book-to-Bill changes trend, we will need to evolve our plans from counter-cyclical to ‘inflationary growth’, which was the phase that held sway for several years into the big market top in 2007.’
The Book-to-Bill (released May 24) took a big jump this week (data for April) and the Canary in a Coal Mine’s Canary (Semi Equipment is an earlier cyclical signpost than the broad Semi sector, which itself is often an early cycle leader) is chirping in similar fashion to late 2012/early 2013 when Semiconductor market leadership began.
As for the Semiconductor index, its leadership has wobbled through the market disturbances of the last year. While still at resistance both in ratio to the S&P 500 and nominally, the last week has obviously been very constructive.

This post was published at GoldSeek on 26 May 2016.