Inflation Investing: How to Find Winners in the Bear Market

Market Edge: In Case You Missed It…

By Charles Sizemore, Chief Editor, The Banyan Edge

Last week saw a rush of economic data releases, driving huge volatility…
You probably saw the unemployment and payroll reports, which came in both better and worse than expected, respectively.
But you may have missed potentially the most important release of all — U.S. Services Purchasing Managers Index.
The broader and more widely followed Purchasing Managers’ Index (PMI) covers factory orders and is a decent leading indicator for the industrial sector.
But given that the United States is predominantly a service-based economy today, I find the Services PMI to be more relevant.
The Services PMI surveys over 400 private-sector companies. Everything from communications and financial firms to hotels and restaurants.
It mainly tracks sales, employment, inventories and prices. Values above 50 indicate that the services sector is generally expanding … and below 50 means it’s declining.
So … how’s it looking out there?

Not so good…
The services PMI was revised to 44.7 for December of 2022, pointing to a major slide in the services sector. The index has been below 50 since July, and — apart from the sharp dip at the beginning of the pandemic — is now sitting at its lowest levels in at least 22 years.
Whether it’s inflation, higher interest rates, lower expectations of growth or some combination of the above, businesses are signaling significant slowdown ahead.
The news wasn’t all bad though. While headline inflation is still nauseatingly high, the data showed the slowest growth in inflation since October 2020.
Last week, Ian offered a contrarian prediction that the Fed would likely end up pivoting and lowering rates far sooner than Wall Street expects. The news coming out of the services PMI would certainly support that notion.
It suggests a recession sooner rather than later and a drop in inflationary pressures that would give the Fed the flexibility it needs to change course.
In the meantime, there are still opportunities to be found trading the downside. And my friend Mike Carr is preparing to do exactly that.
Ian and Amber mentioned above they’ll be tuning in to his presentation on Thursday. You should know that I will as well, and I highly suggest you do the same!
This will be, as Mike puts it, a trader’s market. It’s important to be nimble in tough market environments, with this one being no exception. Click here for all the details on how Mike’s tackling it.

Charles Sizemore Chief Editor, The Banyan Edge