Why Speculating About Deflation May Not Be Premature
by Bob Stokes
Updated: August 21, 2023
The prospects for deflation are rarely discussed in the mainstream financial media. So few expect it -- despite the increasing number of warning signs.
As the July Elliott Wave Theorist noted:
Looking forward, many signs point one way: to a giant sea change in mood and markets. Stock market extremes, the global debt glut, empty commercial real estate, slipping property prices, slipping producer prices, stalling economies: They all point to one thing: a looming deflationary crisis. [emphasis added]
At least one economist seems to agree. Here's an Aug. 16 Markets Insider headline and a quote from the article:
Deflation could soon hit the US as real estate and stock prices are at risk of crashing, economist says
Already, commercial property values are under pressure, while a potentially overvalued stock market could face a swift correction if conditions sour. A plunge in the price of these assets would go a long way in sparking deflation, [Wermuth Asset Management] argues.
"To speculate about deflation again at this point looks premature at first glance, but not at the second. For several reasons the risk of a falling consumer price level has increased," economist Dieter Wermuth said.
Taking a global view, an Aug. 9 Wall Street Journal headline states:
China Slips Into Deflation in Warning Sign for World Economy
Meanwhile, our European Financial Forecast, which is part of our Global Market Perspective, took this angle on deflation in the July issue:
At this point, the economic and financial components of commodity prices are conspiring to produce some jaw-dropping collapses... Nickel prices, a widely watched market due to the metal's industrial demand, are off 61% since March 2022. Prices for natural gas, which European leaders scrutinize due to the market's purported geopolitical sensitivity, are down an astounding 91% since the market's spike high that coincided with Russia's invasion of Ukraine. [There's also been] a 33% decline in average diesel prices in the United States, reflecting deflationary trends in transportation, business activity and energy markets. Meanwhile, the Bloomberg Commodity Spot Price Index, which covers a wide swath of energy, metals and agricultural commodities, has sunk 29% in 12 months.
Of course, the prices of commodities and financial markets in general fluctuate, but the overall trend appears clear.
You will find more analysis in the August Global Market Perspective which points to a developing deflationary trend.
Learn how you can tap into the insights of our monthly Global Market Perspective by following the link below.
What Are the Best Market Indicators? (Hint: the Test of Time)
EWI analysts make it their business to know the history of market indicators, and how they've served our global subscribers throughout the years.
Right now, you can see the time-tested indicators our analysts are using -- and learn what they suggest for the price trends of major global financial markets.
Review the 40-plus pages of our Global Market Perspective, which includes coverage of global stock indexes, cryptocurrencies, bonds, metals, energy, forex and much more.
Follow the link below to get started right away.
Mainly just seven stocks have been holding up the U.S. stock market. As EWI recently noted: "There has never been such a high weighting in the S&P in such a few number of companies." Elliott wave analysis can help you anticipate major shifts in crowd behavior.
Many investors believe that the stock market reacts rationally to news like corporate earnings, oil "shocks," economic data, Fed announcements and so forth. But does the evidence support the notion of such exogenous causality? There are several examples of stock market "myths" and here's just one of them.
The cryptocurrency stage has a clear standout: Solana. On November 16, the world's #6 crypto soared to 18-month highs, outperforming all cryptos in Oct. and Nov. SOL's surge was right in line with its bullish Elliott wave pattern -- NOT a ChatGPT prediction.