Let’s Not Spike the Football

Back in the 1960s, the touchdown celebration was much different than today.

After scoring, players would launch the football into the stands, but this came with a heavy fine from the league. Homer Jones, a receiver for the New York Giants, inadvertently changed the game when he celebrated an 89-yard touchdown catch by throwing the ball into the ground.

Today, the league is a lot more fun with jumps into the stands, group celebrations, or one of my favorites – when a running back gives the ball to a big offensive lineman to thunderously slam the ball into the ground.

Or another professional move – the quiet option – a nonchalant flip of the ball back to the referee.

Should we celebrate the big drop in inflation?

It may not be time to spike the ball just yet, but a little recap first.

We discussed this trend before – how wages were coming down from highs, supply chains were healing, and the lag in housing inflation would catch up.

And that it would lead to the Fed ending its interest rate increases (see our July video – The Last Fed Interest Rate Hike?). It seems the bond market and Fed officials are finally on the same page as interest rates fell and bond prices rallied.

The October Consumer Price Index report showed a 0% change in monthly inflation. If we continue to similar low prints in the months ahead, inflation will continue towards the Fed’s target.

The spike and decline in inflation followed the pattern of past high inflation periods. This one most closely resembles 1951, which was wartime spending for Korea that quickly saw inflation fall back.

So, the economy is in perfect shape? As famous football commentator Lee Corso would say, “Not so fast my friend.”

Wide deficits continue to fuel spending. With household balance sheets in such great shape, the risks that a second wave of inflation will return later in this cycle are not zero.

We also have to monitor the labor market. The momentum over the last few years may be turning. In October, we added just 150,000 jobs (the lowest amount in nearly three years), and prior months were revised down.

Temporary hires are down. Average hours worked are down. Job openings are down. These are not kill shots by any means, but just data points we need to watch as the data evolves over the coming months.

If there’s one lesson in investing, it’s to never get too high or too low. Long-term trends take a while to play out. Once you think you have it figured out, a change out of the blue can humble any process.

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