A major Risk on Rally is brewing. The authorities who control the flow of capital do not intend retail investors to see these signals. However, they have left us with clues.

1st Clue: Quantitative Easing

The U.S. Central Bank will end QT (Quantitative Tightening) on June 1st, 2024, effectively pumping capital into markets. The U.S. Treasury will join the effort, resulting in a net capital inflow.

The Federal Reserves transition to quantitative easing is the single most bullish signal for risk taking.

The U.S. Treasury is also implementing Quantitative easing through Treasury buybacks.

2nd Clue: Downside Inflation Surprise

Global supply-side inflation pressures are easing. International trade can heat up, generating more GDP without inflation pressures. This is healthy for global growth.

Normalizing Shelter Inflation

Shelter Inflation is 40% of CPI, dramatically impacting the entire pie. The problem with shelter inflation is that it lags real-time inflation by 6-12 months. Companies such as Zillow and Redfin reflect forward-looking trends.

New Tenant vs. Zillow Shelter vs. Fed Shelter

Redfin data shows us shelter inflation is within a normalized range.

Tame Oil

Following the Ceasefire, oil prices have remained steady. This has increased investor optimism by reducing investors' inflationary fears.

Softening Jobs Market

The Labor market continues to cool down. Weaker-than-expected Job growth and climbing Unemployment point to less spending, slower growth, and a closer approach to the first rate cut.

Disinflation continues

The latest CPI report dismantled the Stagflationary narrative. Core inflation remains on a downward trend.

3rd Clue: Free Market Forces

Below is a tight correlation between the U.S. Dollar and Market Rates (10y U.S. Treasury Yield). When they rise, they reduce liquidity, creating a headwind for risk assets (stocks and crypto). When they fall, they make a tailwind by loosening financial conditions.

The next major data point comes on May 31st. Core PCE should reveal more disinflation, bringing the U.S. Bond yields down to 4% to kick off June. The Dollar (DXY) should follow, adding fuel to the fire. In my opinion, this should kick off a viscous summer rally.