Stocks continued their climb higher this morning, reaching new all-time high levels once again. The number of days stocks have achieved all-time highs since the election of President Trump has been astounding. Given that eventually stocks will have to slow their growth, the run will end at some point. Based on many financial models, that will happen within the coming months. At that point, we will likely see money flow out of stocks and into the bond market.
The Fed’s favorite gauge of inflation shows that price increases on the consumer level continue to remain low. The Personal Consumption Expenditures (PCE) report showed a monthly gain of only 0.2% in September, which puts the year-over-year increase at 1.4%. This is still an unhealthy level for a growing economy, and is below where the Fed believed it would be at this time of the year. When stripping out food and energy prices, the annual rate is only 1.3%. Unless this rate pushes higher in the near term, the Fed will have a difficult time making their desired increases to the Fed Funds Rate. That could slow the predicted increases for 2018.
Bonds continue to show weakness. As a result, we will maintain our locking bias.