Inflation Is Topping
How to identify Trump Tape Bombs
The Ivory Hill RiskSIGNAL™ remains green, and any pullback should be seen as a buying opportunity. The broader trend holds more weight than any single data point. With both our short-term and mid-term volatility signals signaling green, we’re leaning into risk at this time.
So what changed?
The macro environment has changed significantly. In October 2024, I said that the bottom was in for inflation, which is precisely what played out. Until recently, I expected inflation to continue accelerating until mid-2025, but the macro conditions have changed. Inflation appears to have topped out for now, as the key drivers that were pushing prices higher are starting to slow down. Next week, on February 12th, I anticipate a hot CPI print between 2.95%-3.1%, marking the top for inflation. On March 12th, I expect a cooler print between 2.80%-2.86%. This is telling us we are shifting towards a deflationary macro environment for at least the next 3-4 weeks or until the FOMC meeting on March 18-19.
Earlier this year, I noted that the deflationary impact of energy was likely behind us. That has now changed so we exited our energy position yesterday. Energy remains on our watchlist, as it could benefit from potential deregulation. We quickly redeployed the capital into financials via XLF as we are bullish on financial services.
For our ETF models, the next step is to expand our exposure to regional banks through the KRE ETF.
For clients in our Alpha25 concentrated stock strategy, we initiated a 4% position in Ally Financial. This stock has been on our watch list since last year, and we were waiting for the right catalyst—which came when Ally’s CEO and CFO made their first open-market purchases. Seeing it bounce off the 21 MA was our entry point.
Since last year, our Alpha25 strategy has held positions in JP Morgan (JPM) and American Express (AXP), both of which have delivered strong performance. We remain bullish on both stocks.
Here are the other stocks on our Financials Watch List.
Since inflation is expected to start coming down, does that mean the Fed is going to cut rates soon?
The Fed is unlikely to cut rates again unless one of two conditions is met: a further decline in inflation, with Core PCE falling below 2.60%, or a growth scare marked by unemployment rising above 4.3% and heading to 5%. Until then, I expect the Fed to remain on pause, creating a headwind for stocks.
Is Now the Time to Buy Bonds as Inflation Declines?
There are only two conditions when you should look to buy bonds:
When a recession is imminent.
When inflation is decelerating fast.
If you're buying bonds at these levels, you'll likely be glad you did in five years, but it's still early. If I'm right about a hot inflation report next week, a rise in yields should create a better buying opportunity. The confirmation would be a cool CPI report in March. As inflation cools, bond prices should start to rise.
Remember what I said about Trump Tape Bombs?
Everyone needs to get accustomed to political volatility driven by what I call Trump Tape Bombs—unexpected headlines that trigger volatility. These should be expected because they will continue for the next four years. The media will seize on these moments with alarmist headlines like “Trade War” or “Markets in Turmoil Over Trump Tariffs,” but it’s important to recognize this for what it is—noise. Media companies thrive on impressions to drive advertising revenue, and sensationalism is part of their business model. Most of the time, these headlines hold little long-term significance.
Trump Tape Bombs create episodic, non-trending volatility. These tape bombs are unlikely to derail the rally, as headline-driven volatility rarely ends a bull market unless tied to a true black swan event—an extremely rare, unpredictable occurrence with massive market consequences. Examples include the September 11 attacks, the 2008 financial crisis, and the COVID-19 pandemic.
We just got out of a four year relationship with a president that held fewer press conferences and media interviews than any of the last seven administrations by a wide margin. In contrast, Trump loves the spotlight, and one of his core campaign promises was transparency so it should not be surprising that we are flooded with updates from Trump and his team on any progress. While those who lived through his first term aren’t surprised by this, the market has a short memory and will take time to adjust. Unless something fundamentally breaks, these Trump Tape Bombs—are more than likely buying opportunities than any significant trouble.
This past weekend, President Trump announced new tariffs: 25% on imports from Canada and Mexico and an additional 10% on imports from China. He stated that these measures are necessary to address illegal immigration and the influx of fentanyl into the United States.
Following this announcement, U.S. stock market futures plunged on Sunday night, as investor fears started to sink in.
The media and social platforms went full doomsday mode. I saw posts predicting another Black Monday. Analysts were concerned over rising consumer prices, supply chain disruptions, and the possibility of an all-out trade war derailing the global economy.
But this was an obvious Trump Tape Bomb—one that required a little critical thinking to identify.
Let me show you how you can identify these too.
Step 1: Identify the Source of the Noise
At 5 PM on Sunday, futures opened and plunged. That initial drop was what fueled the panic. Everyone and their pet hamsters thought the market was going to crash on Monday.
But before reacting, you need to pause and do something simple:
Step 2: Think Critically
Ask yourself: What does this actually mean?
Trump laid out his playbook 40 years ago in The Art of the Deal. If you’ve read the book, then nothing he does in public should surprise you. He never enters a negotiation without having more leverage and he is always first to get the word out. He doesn’t pick fights that he doesn’t think he can win.
Step 3: Assess the Situation
Justin Trudeau has been Canada’s prime minister since October 2015—nearly a decade. During his tenure, despite massive currency devaluation and a sharp rise in government debt, Canada’s per-capita GDP (in USD terms) is down nearly 30% from highs.
Trudeau has prioritized climate policies, which have benefits, but he hasn’t focused much on other areas—an odd focus for a country 25 times the size of California with the same population (40 million). Instead of building pipelines to BC ports (to export oil to Japan, China, and other Asian markets) or LNG terminals in eastern Canada (to supply Europe), Canada has become even more reliant on the U.S. under his leadership.
If either country refused to comply with Trump’s demands to secure the border, their economies would be in turmoil in a matter of months. That gave Trump an overwhelming advantage—making it obvious that this was never going to escalate into a full-blown trade war.
Step 4: Check the Market’s Reaction
The VIX spiked to 19. If this were a legitimate Black Swan event—one that could truly derail the markets—it would have gone much higher. Instead, the reaction was mild, reinforcing that this was just noise.
Step 5: Do Nothing
By Monday’s market close, the situation was completely resolved.
Mexican President Claudia Sheinbaum and Canadian Prime Minister Justin Trudeau both opened discussions with Trump.
They agreed to send 10,000 troops to the border and enforce security measures.
Trump responded by announcing a 30-day suspension of the tariffs.
By Tuesday, the market had completely moved on.
The Takeaway
This sequence of events highlights why sudden policy announcements create volatility but typically resolve before spiraling out of control—much like the debt ceiling drama politicians stage every year, only to raise it at the last minute. If you can separate short-term noise from real market risks, you won’t get caught up in the panic.
If the President's every move continues to cause you stress, then I recommend you disconnect from the news and stop checking your account every day. This year, we must embrace volatility, as it isn't going anywhere soon. Panic selling and reacting impulsively to short-term market moves is a surefire way to erode your wealth over time. I am always happy to discuss these concerns with my clients or anyone who follows my work, so feel free to use me as a sounding board.
And remember - The one fact pertaining to all conditions is that they will change.
Best regards,
-Kurt
Schedule a call with me by clicking HERE
Kurt S. Altrichter, CRPS®
Fiduciary Advisor | President
Email: kurt@ivoryhill.com | ivoryhill.com