INTRADAY ALERT: June CPI report shows downside break in inflation = future path of Fed hikes likely lower = supports stocks

INTRADAY ALERT: June CPI report shows downside break in inflation = future path of Fed hikes likely lower = supports stocks
INTRADAY ALERT: June CPI report shows downside break in inflation = future path of Fed hikes likely lower = supports stocks

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Today’s June CPI was very good, showing a downside break in core inflation (core CPI) and hints of sustainable decline in inflationary pressures for the next few months. A few things we want to highlight:

  • Core CPI came in at +0.16%, a solid downside surprise compared to +0.30% consensus.
  • This June CPI print is breaking down 3 anchored views of the “bears/hawks”:
    – No “sticky inflation”: as inflation has broken to downside
    – Undermines “higher for longer”: Why 5.5% Fed funds if Core CPI tracking sub-3%
    – No “hard landing”: Fed doesn’t have to break the economy
  • Why? Foremost, this is the lowest core CPI MoM since Feb 2021. A huge break in pattern from the +0.40% to +0.70% MoM seen consistently since 2021. This is why many investors need to rethink their idea of “sticky inflation.”
  • Second, this is repeatable. Multiple things stand out:
    – Used cars mere -0.5% MoM vs Manheim shows consecutive months of -3% to -4%
    – lag and payback coming.
    – Shelter was +0.4%, even as we know housing is flat at best
    – we think this flows through to Core CPI prints of 0.20% for July and August
    – ex- housing and ex-cars, core CPI is tanking at 0.026%, or 0.3% annualized
    – INFLATION FALLING LIKE A ROCK
  • Third, internals of CPI collapsing as now 45% of CPI now in outright deflation, vs 30% 50-yr avg
    – inflation set to tank and fall like a rock
  • Third, Why would Fed keep Fed funds at 5.5% if core inflation is tracking towards 3.0% or lower by December 2024?
    – this is why investors might need to think about Fed cuts in 2024
    – yup, not “higher for longer”

BOTTOM LINE: Good CPI, supports our rally thesis of 100 points, maybe more

The tactical trade remains intact and we see S&P 500 gaining 100 points this week, exceeding 4,500. But as we highlighted this morning, this could be low:

  • prior CPI surprises saw S&P 500 gain 180-225 points
  • this is a positive surprise
  • bear views are getting shattered
  • we like:
    QQQ 0.36%  XLI -0.04%  XLE 1.15%  <– easing financial conditions
    IWM -0.03%  <–small caps are the “catch up trade” for those behind

INTRADAY ALERT: June CPI report shows downside break in inflation = future path of Fed hikes likely lower = supports stocks

Core CPI is best reading since early 2021 and a downside break

INTRADAY ALERT: June CPI report shows downside break in inflation = future path of Fed hikes likely lower = supports stocks

The two biggest drivers of Core CPI are now tanking.

INTRADAY ALERT: June CPI report shows downside break in inflation = future path of Fed hikes likely lower = supports stocks

And other items are now tanking too

INTRADAY ALERT: June CPI report shows downside break in inflation = future path of Fed hikes likely lower = supports stocks
INTRADAY ALERT: June CPI report shows downside break in inflation = future path of Fed hikes likely lower = supports stocks

INTRADAY ALERT: June CPI report shows downside break in inflation = future path of Fed hikes likely lower = supports stocks

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34 Granny Shot Ideas: We performed our quarterly rebalance on 4/26. Full stock list here –> Click here

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