Friday, September 25, 2009

Inflation Pressures Fall

That was quick.

Last week I wrote about our inflation indicator ,which is derived from the trends in gold, crude oil and yields on the 10 year Treasury, moving into the extreme inflation zone and how this would be a headwind for equities. Bingo! Equities are having their worst week in a while. (They actually do go down.)

Anyway, the trend in crude oil has come off quite a bit and Treasury yields are heading lower as well. In other words, one week later our indicator is neutral; it is not below (but approaching) the low inflation line.

We can remove the inflation concern -real or perceived- from our list of worries.

Here is the indicator. See figure 1 a weekly chart of the S&P500.

Figure 1. S&P500/ weekly

No comments: