The Only Thing Transitory is Your Growth Slowdown Thesis

One of the most difficult parts about being a market participant is that we must simultaneously learn from the past (both our own trades and previous market cycles, in general) while avoiding fighting yesterday's battles in yesterday's market in the present. Indeed, each market can be unique even if it does indeed rhyme with a cycle from Wall Street yesteryear. 

And so it is no surprise that after this many years of deflationary forces since the disinflation of the 1990s, to the outright deflationary forces after 9/11 for a time, followed up the deflationary apocalypse of the Global Financial Crisis in 2008 and all subsequent aftershocks, we have both a Federal Reserve Chair and the superstar fund manager of this cycle, Cathie Wood, both harping on growth slowdown risks in lieu of the risks of inflation. 

But with supply chain issues lingering with no end in sight, and higher gas prices yet to have destroyed end user demand, the potential for another leg higher in inflationary forces remains distinct and perilous. I recognize the counter to that argument is that even if we do see another push higher in inflationary prices, it will be transitory, too.

However, at a certain point the psychology of inflation kicks in and the expectation of higher prices tomorrow begins to see consumers and producers panic to lock in prices today, which in turn begets another push higher in prices. Another factor to consider: If the Delta variant caseload is peaking here, as I believe it is, many bets on the growth slowdown thesis will unwind. 

As for the tape and what Mr. Market believes, the global materials mining ETF, XME (weekly chart, below) is closing in on four full months of consolidation since breaking multi-year resistance coming out of a ten-year bear market (but notice how price is now holding above prior 2018 highs, a likely bullish sign). It is hard to believe the likes of FCX and X have been out of favor for that long, but it simply reinforces the psychology in play after such a long period of time with deflation the name of the game. It is only natural to look that way once again.

But I think the risks are the other way this time around, which means value stocks, dividend payers, cyclical and commodities should be bought on the dip here, and growth stocks should be discarded into this latest rally.