Is a “November Crash” Coming for Stocks?

Stocks fell this morning opposite Bitcoin, which touched a new all-time high above $68,000. Volatility’s up, too, as investors weigh whether to “buy the dip.”

It’s not a big dip, relatively speaking. At least, not yet.

But the market has been very streaky over the last two months. September saw the S&P plummet roughly 6% from its all-time high in a matter of weeks. Then, in October, the S&P logged one of its best months ever. When stocks hit a rough patch, they spike lower. When a rally follows, they rise just as quickly.

In fact, the index hasn’t closed lower on the day in nine trading sessions. There’s no doubt that bulls were in control last month. But today, momentum has shifted significantly toward bears for the first time in a long while.

And it may only get worse following the latest inflation data, released this morning.

The Producer Price Index (PPI) jumped 0.6% higher month-over-month (MoM) in October, matching the consensus estimate. Year-over-year (YoY), the PPI was up 8.6% to an 11-year high while also falling in line with analyst expectations.

“Bottom line, while today’s data was as expected, the numbers are certainly eye-opening in terms of the pace of gains,” explained Bleakley Advisory Group CIO Peter Boockvar.

The Labor Department’s report showed that energy and transportation costs surged last month, rising 4.8% and 1.7% MoM, respectively. It’s a trend that continues to pump headline PPI higher and one that has lasted far longer than the Fed expected.

“The acceleration in US inflation may not fade as quickly as previously thought, particularly for businesses because of the global supply-chain issues,” said Moody’s Analytics senior economist Ryan Sweet.

“Elevated inflation is turning up the heat on the Federal Reserve but they haven’t shown signs of buckling as they will stomach higher inflation to get the labor market back to full employment quickly.”

Will “full employment” ever be reached, though? The Fed’s goal was to hit 3.5% unemployment, which is what the US was at immediately before the pandemic started. In October, unemployment fell to 4.6% as the labor recovery slowed.

It could be years before 3.5% unemployment is achieved, if ever. And if the economy does reach “full employment,” that probably means inflation will have climbed even higher.

To bring inflation lower, the Fed will need to raise rates substantially. Or, the US economy will have to slow down.

Either solution would whack stocks for major losses.

The third alternative is to let inflation run rampant, decimating America’s purchasing power while those invested in the market watch their portfolios rise. But the gains won’t be real. The indexes will simply attempt to match the rate of inflation.

And that won’t be good for anyone. Not even the 1%.

The October Consumer Price Index (CPI) comes out tomorrow morning and over the last few months, the gap between the CPI and PPI has widened in historic fashion.

At some point, that gap needs to close. The result will be either slimmed margins for producers or massive price increases for consumers.

Bottom line: things don’t look good, regardless of which side of the transaction you’re on. Today’s stock market losses may indicate that investors are starting to realize that, especially as far greener pastures await them in the land of digital currencies, where Bitcoin and Ethereum continue to make new record highs.


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