Elliott Wave Trader: PPI Report: Inflation Still High!

Inflation remains a top concern for investors. Fortunately, it’s starting to come down. The latest report for producer price inflation (PPI), showed a 0.1 percent increase for November compared to the prior month. On the more important year-over-year basis, however, it declined.

The market initially treated the data as good news. However, that bullish sentiment proved short-lived as stocks gave up most of their gains on Tuesday. Why? Technical indicators may hold a clue.

So far this year, the stock market has been trending down. But it hasn’t been a straight line. There have been weeks or even periods of a month or more where stocks have gained back some of those losses. Nevertheless, the losses have continued.

Now, it appears that stocks are being rejected at their long-term downtrend line once again. That’s a sign that the market isn’t done selling off yet. Amid a backdrop of still-high inflation and rising interest rates, that makes sense.

It will likely take more interest rate increases, and more months of declining inflation data for the Fed to stop hiking rates.

From there, the economy can better adjust. In time, the economy will be better off if inflation is brought back down to historical levels, rather than allowed to linger at above-average rates for years.

That move applies beyond the stock market as well, indicating further risks to bonds, cryptocurrencies, and other assets in the months ahead.

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