Summary
This update from Phil Anderson discusses significant market breadth divergence, accelerating inflation (CPI and PPI data), and the breakout in the 30-year Treasury yield, drawing parallels to the late 1990s internet bubble. It highlights how these factors could impact the real estate cycle and stock markets, and announces the addition of the ProShares UltraShort 20+ Year Treasury (TBT) to the Mexican Pete model portfolio.
Key Claims
- Market breadth divergence is significant: S&P 500 rising on a few mega-cap tech stocks (GOOG, NVDA, AMZN) while many others pull back, with only 50% of stocks above their 50-day MA and 37% above their 20-day MA. This is reminiscent of the late 1990s internet bubble. — confidence: high
- Inflation is accelerating: US Consumer Price Index (CPI) increased by 3.8% in April compared to last year (largest gain in nearly three years). Producer Price Index (PPI) increased by 6.0% in April (largest gain since end of 2022). — confidence: high
- The Federal Reserve board members are showing growing hawkishness. — confidence: high
- Market-implied odds now point to a Fed rate hike coming in the next six months. — confidence: high
- The 30-year Treasury yield is breaking out from a Mexican Pete pattern, crossing above 5%, reaching its highest level since 2007. — confidence: high
- Interest rate changes driven by inflation could play a significant role in bringing about the end of the real estate cycle’s upswing, causing cascading impacts across all markets (stocks, currencies, precious metals). — confidence: high
Predictions / Forecasts
- Watch for a similar dynamic to play out as the late 1990s internet bubble, where concentration grew in tech stocks while the average stock struggled under rising inflation and interest rates heading into a mid-cycle peak. — status: pending
- A Fed rate hike is expected in the next six months. — status: pending
Concepts Referenced
- Market Breadth Divergence
- Inflation
- Interest Rates
- Mexican Pete Trading Style
- Real Estate Cycle
- Gann Analysis
Notable Quotes
- “I noted in last week’s update how just five stocks have accounted for half of the S&P 500’s gain since April, including mega-cap companies leveraged to the AI trade.”
- “In fact, as the S&P jumped to a record high last week on May 13, nearly 10% of the S&P’s underlying constituents were making 52-week lows. That was the largest share of the index making new lows in history with the S&P closing at a record high.”
- “The current environment is very reminiscent of the late 1990s internet bubble.”
- “Everything in the market is brought together by interest rates.”
- “The developments underway with inflation and the impact on rates across the yield curve could play a significant role in bringing about the end of the real estate cycle’s upswing and cause a cascading impact across the market, impacting everything from stocks to currencies and precious metals.”