THIS INTRADAY ALERT IS SENT SOLELY TO CLIENTS OF FUNDSTRAT GLOBAL ADVISORS
June Core CPI released this am and came in at +0.06% MoM, versus consensus of +0.21%. Whoa. Inflation is falling like a rock. This is now the third “lower than expected” Core CPI and each of these is seeing a faster decline in inflation.
- This was a good inflation report with the downside in shelter finally. Shelter rose +0.20% MoM, a huge break in pattern from +0.4% to +0.6% MoM consistently over the past year. The contribution to the CPI core inflation thus dropped huge.
- As we have written about many times, the “lag” in the CPI report has been shelter and auto insurance. And both now seem to be cooling. This is why we expect inflation to “fall like a rock” because all the other components of CPI are largely back to below pandemic trend, in aggregate.
- There are no “alarms” or areas of concern. As we have written about for the past few months, the rest of CPI components are seeing a slowdown in inflation.
- Even services ex-shelter is slowing to +4.92% YoY from +5.01% last month. The “inflationistas” have used the argument that wages will keep services inflation high, but this is clearly not the case. And wage growth is already visibly slowing, so this is not a driver of any second wave of inflation.
- The Sept Fed funds futures now see an 85% chance of a cut in Sept, up from 73% pre-CPI report. This is a level of “certainty” that we believe will justify the rotation into interest rate sensitive groups. We wrote about this earlier this week.
- The winners of this rotation are:
– small-caps IWM 0.22%
– Industrials XLI 0.33%
– Financials XLF 0.25% KRE -0.16% KRX - We also see this triggering a rotation into the laggard FAANGS. This is a strange idea, I know, but we discussed this in several reports this week. What are the laggards?
– short-term: NVDA 3.27% which has underperformed past few weeks
– long-term: TSLA 4.22% which is 2-years underperforming - Wouldn’t Fed cuts particularly benefit TSLA’s automotive business (boosting sales)? Moreover, as many note, Tesla has not been fully recognized for its lead on both AI and robotics.
Bottom line: Stay constructive in July
We stay constructive. Our strategy recommendations remain, we stick with what is working:
- AI NVDA 3.27% CDNS 1.78% ARM AMD 1.78% AIQ 1.34%
- Ozempic-related LLY 0.40% NVO 0.84%
- Financials and Industrials XLI 0.33% XLF 0.25%
- Bitcoin & Proxies: BTC MARA -5.42% PYPL 1.84% COIN 1.28% MSTR -0.13% SMLR -1.34%
- Feb Stealth: Small-caps IWM 0.22% IJR 0.23%
History also shows stocks strong in first half, outperform in the second half. Thus, we favor those S&P 500 names which gained >30% in 1H24. These are shown below.
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36 Granny Shot Ideas and 44 SMID Granny Shot Ideas: We performed our quarterly rebalance on 4/16. Full stock list here -> Click here
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