The relationship of inflation to stocks, bearish investors, the current opportunity of the beaten sector

RRetail profits were the big story this week as reports of declining margins led to difficulties in the Consumer Staples and Consumer Discretionary sectors. Periods of rising high inflation have produced poor stock returns, but the odds are in your favor once inflation starts to decline. Investors are becoming more bearish, which has always been a counter-indicator for stocks. If the market is turning, it might be worth buying the most battered sectors as other investors flee. As housing affordability plummets, demand begins to decline. Despite growing fears of a recession, the Atlanta Fed’s estimate for Q2 GDP actually rose last week.

1. Inventory exceeds sales, which could dampen goods inflation:

Source: h/t Anna Wong

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2. If we have experienced a spike in inflation, this can be positive for stock markets:

Source: CBA Research

3. Bullish actions are few and far between:

Source: @hedgopia

4. Which has historically led to strong future returns:

Source: Evercore ISI Research

5. Equity market volatility creates opportunities for outperformance:

Source: Evercore ISI Research

6. Investors have largely fled the tech sector:

Source: BofA Global Search

7. The recent decline in housing affordability is unprecedented, but the level of affordability is not yet abnormal:

Source: MRB Partners

8. Potential buyers are starting to react:

Source: red fin

9. The increase in the estimate was mainly attributed to strong industrial production:

Source: @AtlantaFed Read the full article

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