The Market Cycle Clock Says Chill

What Jeff deGraaf taught us about inflation vs stock market returns

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Jeff deGraaf’s Market Cycle Clock

Today’s new episode of The Compound and Friends features Jeff deGraaf, one of the most notable market technicians on Wall Street and a member of the Institutional Investor Research Hall of Fame.

Among the many topics we got into was the Market Cycle Clock Jeff and his colleagues at Renaissance Macro (RenMac for short) use to track the forward returns for stocks relative to the current inflation picture.

Jeff points out that the recent rise in inflation reports (Y axis running north-south) has been climbing clockwise from the bottom left square up into the middle left square. This has been running in an aberrant direction because of the recent re-acceleration in the data. The yellow dot is where we are now.

As you can see, historically returns going forward have been decent from this inflation regime (6.23%). You don’t want that yellow dot to continue traveling upward.

Today’s unemployment report for the month of April has served to cool interest rates off a bit this morning, as did Fed Chair Jay Powell’s press conference on Wednesday in which he made it clear that rate hikes are not on the table and stagflation is not the concern. Bonds were bought on that presser and they are being bought again today, bringing rates down and calming the markets.

Nonfarm payrolls increased by 175,000 on the month, below the 240,000 estimate from the Dow Jones consensus.

The unemployment rate ticked higher to 3.9% against expectations it would hold steady at 3.8%. A more encompassing jobless rate edged up, to 7.4%, its highest level since November 2021.

Consistent with recent trends, health care led job creation, with a 56,000 rise. Other sectors showing significant increases included social assistance (31,000), transportation and warehousing (22,000), and retail (20,000).

Following the report, traders priced in a strong chance of two interest rate cuts by the end of 2024.

That’s a nice quencher of a jobs report. More of these and we’ll be putting July back on the table for the start of the cutting cycle.

In the meanwhile, earnings are growing across most sectors and consumers are still consuming at a healthy clip. And, technically speaking, Jeff’s work suggests we can remain constructive on the bull market and the disinflation trend as they currently stand.

You’re going to love learning from Jeff on this week’s show, now live on Apple, Spotify and everywhere else you get your favorite podcasts. Find is here:

Expanding into Los Angeles

Ritholtz’s new office in Manhattan Beach, Calif. is staffed by two advisors: Michelle Katzen and Jordan D. Hanson, who recently joined Ritholtz from registered investment advisory firm HCR Wealth Advisors. Katzen, an advisor with 15 years of financial services experience, says she joined Ritholtz for its culture and focus on financial planning.  “What Josh, Barry, Kris and Michael have created is really special—their culture of excellence and dedication to client success resonated deeply with me,” said Katzen. 

Special thanks to Andrew Welsh at Barron’s for allowing Jay Tini and I to explain our growth strategy at Ritholtz Wealth Management (you can read the whole article here).

This week we took Los Angeles by storm, seeing dozens of clients and prospective clients in the area over the course of three whirlwind days of meetings, live events, dinners and looooong walks in between.

We’ll have the show we recorded before the live LA audience up next week but for now I thought I’d share some snaps. Thanks to everyone who came out to meet with us and to watch the taping. We will be back!

3rd Avenue in WeHo, bottle compliments of my friend Alex

Nicole at the Apple Store in the Grove

“Look up, everyone!”

I swear I only had one

The famed Dan Tana’s Italian restaurant had us all feeling a bit like Sinatra, try the chicken parm, it’s to die for

Nicole and Kris wandering around. Barney’s Beanery in the background is where Quentin Tarantino sat and wrote the screenplay for Pulp Fiction according to legend

These two took me on a grueling uphill death march into the Hollywood Hills. “Here you’re resting?”

John, Duncan and Rob prepping for the event downtown

We crushed, of course, I have the best team in the business

Michael and I leading our superstar CFPs Michelle, Jonathan, Brian and Kevin on an expedition to the Farmer’s Market, President Jay bringing up the rear

What city should we come to visit next? Do you want some help with your plan or portfolio (or both)? Tell us here:

Okay, that’s it from me. Still trying to get back on East Coast time. Talk soon! - Josh