Welcome to my latest video presentation. Below is a condensed transcript; my video contains additional details and several charts.

Allow me to introduce one of my favorite contrarian indicators: cable television news, in particular the celebrity “pundits” on the financial advice shows.

Case in point: On February 9, CNBC’s Jim Cramer opined: “Price stability … is right around the corner,” adding that the Federal Reserve was closer to winning its battle against inflation than Wall Street thinks. He suggested that a dovish turn on monetary policy was imminent, which in turn would lift stocks.

When I heard Cramer’s words, I thought to myself: “Goodbye, Fed pivot.”

Sure enough, over the past two weeks, we’ve gotten terrible news on inflation, raising odds that the Federal Reserve would go higher for longer.

The government reported last Friday that the personal consumption expenditures (PCE) price index in the U.S. climbed to 5.4% on a yearly basis in January from 5.3% in December, surpassing consensus expectations of 4.9%. Stocks tanked on the news.

The week before, the January numbers also came in hot for the consumer price and producer price indices.

After a powerful rally to start the year, markets in recent weeks have gotten volatile and pulled back. The yield on the 10-year Treasury has risen to about 3.95%, which puts the brunt of the pain on growth stocks, particularly in the technology sector.

This Fed’s current tightening campaign has caught Wall Street off guard, largely because of the extraordinary circumstances fueling inflation.

The major culprits fueling inflation are insidious because they’re unprecedented. We’ve seen pent-up demand following the post-COVID reopening of the economy, a dynamic that created global supply chain disruptions, supply shortages, and rising commodity prices…all factors exacerbated by the Russia-Ukraine war.

Fed tightening cycles create headwinds, of course, but investors over the past several months have been compelled to continually reset their expectations on monetary policy. The unique circumstances in play can’t be found in textbooks.

The good news is that inflation is on a downward slope. However, prices aren’t cooling as fast as investors are hoping. Inflation has peaked, but it’s proving stickier than expected.

Yes, the end of this hiking cycle is getting closer, but the Fed still has more work to do. I’m still bullish over full-year 2023. The economy boasts many positives, including a resilient consumer and job market. But expect plenty of bumpiness ahead.

Paradoxically, bad economic news would, for Wall Street, constitute good news. Slower wage growth, fewer job openings, and a rise in the unemployment rate would be necessary before the Fed stops boosting rates.

Wall Street expects a few more 0.25% rate hikes in the coming months, followed by a pause during which the Fed will hold its policy rate at around the 5% mark, as Fed officials parse the effects of higher rates on inflation and economic growth. The rate is currently in a range of 4.50% to 4.75%; it was virtually zero a year ago.

After the latest spate of disappointing inflation data, an economic “soft landing” is increasingly improbable. We’ll probably see a short and shallow recession in early 2023, followed by green shoots of new growth and more bullish conditions in the latter part of the year.

You should feel confident enough to buy on the dips and stick with your long-term portfolio strategy.

The week ahead…

Keep an eye on the following economic reports, scheduled for release in the week ahead:

Durable goods orders and pending home sales (Monday); S&P Case Shiller U.S. house price index and consumer confidence (Tuesday); ISM manufacturing, construction spending, auto sales (Wednesday); initial jobless claims (Thursday); and ISM services (Friday).

This week’s data will give us clues as to whether the economy continues to run hot, or whether the Fed’s rate hikes are starting to show the desired disinflationary effects.

In the meantime, my colleague Dr. Joe Duarte has developed a way to generate cash for his followers, despite the risks I’ve described above.

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John Persinos is the editorial director of Investing Daily.

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