it's the United States presidential elections tomorrow and something called inflation expectations have been skyrocketing recently this is basically financial markets saying that they believe inflation in the United States is going to go up over the next few years this is the chart showing us Market inflation expectations going back 3 months and they've surged by around 133% over the last few weeks the market went from expecting about 2% inflation to expecting 2.3% inflation now that may not sound like much but this kind of move in inflation expectations can have a massive impact on both the stock
and bond markets in fact the stock market that you can see here the S&P 500 has been declining over the last few trading sessions now if we zoom out just a little bit here we do see that this isn't the first time we've seen a spike in inflation expectations that leads to a decline in the stock market in fact if you've been watching our last few videos this correction in stocks will be no surprise we posted a video named the stock market is about to get Ruck pulled right here explaining exactly why we were expecting
a correction in the stock market as a result of this spike in inflation expectations in fact we sent out sell alerts to our clients to take profits on a bunch of our positions and we initiated a couple of short trades on the market that are so far up very nicely now as always the question is what's coming next and more importantly how are the results of the US elections tomorrow going to impact financial markets betting markets over the last couple of months have increasingly favored faed a trump win you can see Trump's odds of winning
hit over 60% just a few days ago marking a very wide gap between Trump and Harris that is up until this very weekend where the odds have suddenly shifted violently back in the opposite direction now we haven't seen financial markets really react to this shift in the odds of winning what we do know is that the increase in the odds of a trump win have coincided perfectly with the increase in inflation Expectations by the market that we discussed earlier as many people believe that Trump policies are more inflationary than Camala Harris's now we'll discuss in
just a second whether this is actually Justified but the result of these higher inflation expectations is that the US treasury bond market has been going into full panic mode recently it corrected about 10% in just a few short weeks and this is the primary reason for why the stock market has been declining today indeed if you are a holder of US Government debt which is what you are if you are holding treasury bonds you're essentially looking for the government to be able to pay back that debt and give you interest on it and ideally you
want that interest to be higher than the rate of inflation otherwise you're basically losing money so if all of a sudden you expect that inflation is going to be a lot higher because Trump is going to win the presidency that might make you want to sell the debt and this is exactly what's happening with the US treasury bond market today US Treasury bonds have sold off by about 10% over the last few weeks as a result of these higher inflation expectations the largest decline since March the before that October of 2023 and before that October
of 2022 all instances where the stock market also corrected by about 5 to 10% this is how we were able to protect and warn our clients against this correction because this is just another one of the many patterns that we've learned to recognize as a way to manage our risk or make a profit in the market but our next bet is that we don't believe this panic in the bond market is going to last very long which could mean that this dip on stocks will be relatively shortlived one of the key reasons for that is
on this chart right here this is the number of job openings in the United States and we recently got another lower than expected reading for job openings this is an incredibly important component of inflation in the United States today job openings have come down to prepandemic levels a period by the way where inflation was quite low this is substantially different to what we saw in 2021 and 20122 here job openings were incredibly plentiful which meant that workers had a lot of bargaining power which was very inflationary back here we were calling for inflation to Skyrocket
and for the US treasury bond market to panic sell as a result when we look at what happened to inflation very briefly after the surge in job openings that's when you saw the skyrocketing inflation rates in the United States today the number of job openings in the US is heading aggressively lower and is back to the same level it was in 2018 2019 a period where inflation was staying steadily below 2% by the way this was when Trump was still in office this was following his tax cuts and following his trade war with China all
things that experts today are pointing to being a potential driving factor for inflation looking forward so if the data changes we'll change our mind on inflation and the bond market and the stock market but right now we have absolutely no evidence of job openings heading in the opposite direction they're still pointing aggressively downwards not at all suggesting we should be expecting a major pick up in inflation like we did in 21 22 so the only way we see inflation picking back up is either we see a pick up in economic activity leading job openings higher
or we see a massive oil shock because history does show that inflation can Spike as a result of an oil shock without necessarily seeing a thriving economy this is what's called stagflation and something we saw in the 1970s but again we are data dependent and over the last 2 years oil has been trending lower not higher a direct result of a gradually weakening economy in fact if we overlay the chart of inflation expectations that we were looking at in the beginning of this video we see that oil has completely disconnected right now from the Market's
expectation of inflation now we believe this is a result of everybody focusing on the election and putting way too much weight on how much impact a trump win would have on inflation our BET right now is that once the election has passed and all the hype around it has cooled down the market will begin focusing on the weakening economic data Trends and inflation expectations will Spike back down and what has happened to the stock market every single time that inflation expectations have cooled down it triggered a rally so that's why for now we don't believe
this correction is going to last very long history also shows that the stock market typically rallies following the election and into the end of the year this is the average performance of the S&P 500 during a presidential election year and you can see a declining stock market heading into the election is very typical but the stock market typically recovers very nicely and heads higher heading into the end of the year so we are buying this dip initiating new trades on braavos research.com we scanned a few trades over the weekend that we're looking to add to
our list of active trades we expect to be quite aggressively long heading into the end of the year the overall price structure of the market is still very strong and for now we don't have enough evidence to suggest that the market should break it if you want to stay up to date on our entire strategy when it comes to the stock market and get access to all of our trades you can click on the link in the description below to find out more
