Inflation is rising and the Fed will react too late

[Damir, 7-9-2024, Seeking Alpha, “The CPI Preview: Inflation To Keep Rising This Summer, Despite The Slowing Economy,” https://seekingalpha.com/article/4703136-the-cpi-preview-inflation-to-keep-rising-this-summer-despite-the-slowing-economy, accessed 7-9-24] nikoglenn

Over the next two months, we are likely to see rising annual inflation, which will prevent the Fed from cutting interest rates in September.

However, at the same time, it appears that the US economy is slipping into a recession, as many leading indicators are near or at recessionary levels.

Thus, a combination of rising inflation and slowing economy over the next two months increases the likelihood that the Fed reacts too late and starts cutting only when it becomes obvious that the US economy is in a recession - when the unemployment rate spikes. This is, in fact, a normal cycle - the Fed generally cuts when the recession hits.

The S&P 500 (SP500) is currently overvalued with the TTM P/E ratio above 24, driven by the bubble-like behavior concentrated around tech mega-cap stocks associated with the Gen AI theme.

The S&P500 is facing three risks:

the collapse in the housing bubble necessary to bring the OER Shelter inflation down

the collapse of the Gen AI bubble

and the recession with at least 10-20% fall in earnings.

Thus, the S&P 500 is facing a major drawdown - a recessionary bear market with the bubble burst. However, as with any bubble, the timing of the bubble burst remains an issue.

My prediction is that:

inflation will keep rising over the next two/three months, but that's a lagging indicator.

at the same time, the US economy will continue to slow, but the Fed will not cut preemptively to prevent the recession, due to rising inflation.

the unemployment rate will spike to near 4.5% this fall, at which point the Fed will start cutting (probably December)

the S&P 500 (SPX, SPY) will peak during the summer and enter a bear market by the end of the year.