As I type Dow futures have dropped from +150 to -230. A 380 decline that began the minute the January Consumer Price Index came in at +.5% versus the +.3% consensus expectation. Yesterday virtually all of the experts were -- and clearly the "smart" money was -- betting it would come in below, at, say, .2%; thus quelling, for the moment, the market fears over higher interest rates. I sure saw it in rallying gold and bond prices yesterday, (bonds tanking [rates rising] as I type) and in equity futures this morning.
Now, we've been telling you for months (here's a recent example that would be good for you to read, here's another) that we see inflation brewing -- so we are not the least bit surprised by this morning's number --and we warned of its effect on market volatility: Here's the last paragraph from the first blog post I linked above:
And while a higher rate environment suggests that we should anticipate a higher level of equity market volatility going forward, we shouldn't at this juncture view it as a bad thing, as it'll simply confirm the positives we're seeing in the data.This morning's selloff in equity futures notwithstanding, as we stated in the January 11 article, inflation at this juncture is simply confirmation that the economy is on firm footing. Probabilities point to the stock market coming around to that way of thinking in the not too distant future. Although, as I suggested in a video commentary last week, the correction lasting a bit longer would ultimately be a good thing in our view.