Stagflation Signals Send Stocks Sliding, Gold Gains Ground
By Bill Brocius
Inflation is back on the table. Fresh CPI data reveals inflation climbing higher than expected, driven by a spike in food costs, while dismal jobless claims—thanks in part to Hurricane Helene—signal we may be staring stagflation in the face again. For those keeping an eye on the economy’s fragile pulse, these are warning flares, plain and simple.
Let me break this down for you.
Inflation’s resurgence sparked turmoil across asset classes, shaking up the rate-cut outlook. The Federal Reserve’s cuts are now viewed as less likely in 2024 (hawkish), but investors are already bracing for deeper cuts in 2025 (dovish). This sudden shift rattled Wall Street.
Stocks slid lower across the board, with small caps taking the biggest hit. But don't be fooled by the late-day “panic-buy” into the close—it wasn’t enough to mask the growing cracks. NVIDIA’s stock is hanging in there, holding the line, but it’s a thin thread holding the broader market together.
Meanwhile, volatility is rising. The VIX, often referred to as the market’s fear gauge, is dramatically detached from the stock market, a sign of brewing trouble. With Tesla’s robotaxi event tonight and earnings season kicking off tomorrow, volatility could be the new normal for a while.
Treasuries? Mixed bag. The short-term 2-year yield dropped slightly (-3.5 basis points), while long-term 30-year yields pushed higher (+4 basis points). The result? A sharply steepening yield curve, undoing last week’s flattening. This steep curve is an early signal that traders see higher inflation ahead.
The dollar, in its eighth straight day of gains, is sending another strong message. The last time we saw a rally like this, the Fed was just starting its rate-hike campaign back in April 2022. Yet, despite the dollar’s strength, gold surged today, with investors flocking to it as a safe haven.
As for Bitcoin, it stumbled, slipping below the $60,000 mark yet again. The culprit? The SEC dropped a lawsuit on digital asset market maker Cumberland DRW, sparking another round of regulatory fear, uncertainty, and doubt (FUD) that weighed heavily on the crypto space.
Oil prices, after two rough days, finally managed a rebound, with WTI crude climbing back over $76 per barrel. But don't let a brief spike fool you—volatility in the energy markets isn’t going anywhere.
The bottom line here? Today’s market behavior screams contradiction. Inflation expectations are rising, even as short-term yields sink lower. The mixed data leaves traders grappling with the idea that inflation remains a problem, but the weakening labor market could force the Fed to cut rates sooner than expected.
Let me tell you this: Stagflation is the nightmare scenario for your money—persistent inflation coupled with a slowing economy. If you're not already taking steps to protect your assets, you’re leaving yourself exposed to serious financial risk.
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