Written by: Angela Akers

What a difference a week makes! Last week, the Trump Rally was running hot, and the indexes were hitting highs. This week, economists and the talking heads began discussing “Trumpflation” again and the mood changed drastically. If you recall, “Trumpflation” was a term that was coined leading up to the 2016 election; derived from concerns over the perceived effects that some of Trump’s proposed policies may have on inflation. While Consumer Price inflation did tick up during President Trump’s first term, it reached a high of just 2.9% in 2018 before pulling back. So, the perception did not become reality, and the use of the term died down following Trump’s first year in office.

Unfortunately, as we know, perception is reality and investors dumped stocks as those “Trumpflation” concerns were reignited over the new proposed policies and their subsequent effects on inflation. To add to that, Federal Reserve Chairman, Jerome Powell, announced that there is no reason to be “in a hurry” to cut rates with employment stable and inflation running close to their 2% goal, suggesting cuts may be off the table in the near future. This was a one-two punch of worries for investors; however, we don’t know for sure if either will materialize. Dr. DiLiddo once said, “predicting the unknown interferes with your ability to deal with the known.” Let’s talk about what we do know and how to deal with that.

One thing that we know is earnings, inflation and interest rates are the three most powerful factors affecting the stock market. Therefore, we can turn to our Climate report (shown below) and our Truth Chart (introduced and described in Dr. DiLiddo’s Essay of March 21, 2003) to give us a macro view of the current economic state. As of tonight, we have a Case 4 Bull Market Scenario in which earnings, inflation and interest rates are rising.

While the Case 4 Scenario often leads to the end of the Bull Market, earnings (which we know do erode with rising inflation and interest rates) are always the determining factor. VectorVest tracks earnings using our Earnings Trend Indicator, ETI.  If it is above 1.00, we are in a Bull Market Scenario. If it is below 1.00, we are in a Bear Market Scenario. Currently, our ETI stands at a fairly healthy level of 1.09. If you access our Market Climate Graph (click on the Graphs tab, then select Market Climate from the dropdown on the upper left), you will see that the ETI is a relatively slow-moving indicator. Therefore, we will know well in advance that the next Bear Market Scenario is approaching. Based on this, there is nothing to worry about in this regard now.

Another thing that we know is that, as I said above, perception is reality and the news, rumors and innuendos of the day do move the market, and it has caused quite a selloff this week. How do we deal with that? Well, we don’t fight the market, and we can clearly see on the Home page that red lights have returned to the Color Guard and the Primary Trend of the market turned down yesterday. Therefore, on a day-to-day basis, we should heed the advice of the Color Guard. It will tell us when it’s OK to buy stocks and when it’s not OK. Based on the current outlook, this is not the time to buy stocks.

The macro view of the stock market tells us that all is not lost, but, for now, the micro view tells us to keep our powder dry and wait for the return of green lights before buying stocks. Personally, I’m more comfortable Dealing With Reality.

PS. Dr. Glenn will be giving you a sneak peek of our upcoming Tampa Two-Day Investment Seminar in tonight’s “Special Presentation” where he’ll delve into how to deal with whatever reality 2025 manages to throw at us. You Do NOT want to miss his presentation or the Tampa event! Join the VectorVest coaches and Special Guests IN PERSON (for a nominal fee) or sign up for the LIVESTREAM (for FREE).

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