CPI inflation doesn’t derail a rate cut… what to look for at next Wednesday’s FOMC meeting… will the bond market ruin the party?… Jonathan Rose’s LYFT trade tops 200%… the latest update from Luke Lango at the All-In Summit… don’t miss Eric Fry’s Apogee replay
We dodged the “too hot to cut rates” inflation bullet.
This morning’s Consumer Price Index (CPI) report showed that prices climbed 0.4% in August. While that was slightly greater than the 0.3% forecast, it wasn’t hot enough for heartburn on Wall Street, especially because the year-over-year figure matched expectations, coming in at 2.9%.
Core CPI, which strips out volatile food and energy prices, edged 0.3% higher in August. That put the 12-month increase at 3.1%. Both numbers came in as expected.
Here are more details from CNBC:
[The CPI’s] biggest gain from a 0.4% increase in shelter costs, which account for about one-third of the weighting in the index.
Food prices jumped 0.5%, while energy was up 0.7% as gasoline rose 1.9%, likely indicating tariff impacts on prices.
While that headline month-to-month reading was slightly hotter than expected, Wall Street is brushing it off because of a surprise increase in weekly unemployment compensation filings.
For the week ending September 6, weekly unemployment filings jumped to 263,000, topping the forecast for 235,000. This is the highest reading in nearly four years.
So, with worse than expected unemployment filings outweighing slightly hotter inflation, that leaves us where we were yesterday…
All systems go for a rate cut next Wednesday.
Now, that above-forecast 0.4% monthly CPI gain essentially shuts the door on a half-point interest rate cut, but according to legendary investor Louis Navellier, the size isn’t the main story anyway…
In yesterday’s Digest, Louis reoriented us away from the size of the September rate cut toward the updated dot plot
To make sure we’re all on the same page, the dot plot is a visual representation of where each FOMC member projects the fed funds target rate will be over the next two-to-three years.
Updated quarterly, it’s part of the Summary of Economic Projections (SEP) that contains forecasts from FOMC members on key economic indicators like GDP growth, inflation, and unemployment.
Here’s Louis from his Growth Investor Special Market Podcast yesterday:
The big news is not so much the Fed’s rate cut on next Wednesday. The big news is going to be the dot plot and how many rate cuts do we have to come.
So, before the PPI, Wall Street was expecting three. Now they’re probably expecting four.
So, we shall see.
This dot plot is especially significant because Fed members are caught in a tug-of-war today.
On one side, inflation has proven stickier than the Federal Reserve would like, as this morning’s CPI data shows. The latest 2.9% annual reading means we’re running nearly 50% higher than the Fed’s 2% inflation target.
On the other hand, the labor market is softening fast. As we’ve covered here in the Digest:
- Recent jobs numbers are concerning,
- The unemployment rate has crept to its highest level since 2021,
- And the latest unemployment filings show continued weakening.
Now, it’s clear that the Fed is finally shifting toward prioritizing labor-market weakness. Here’s Federal Reserve Chairman Jerome Powell from his speech at Jackson Hole in August:
With policy in restrictive territory, the baseline outlook and the shifting balance of risks may warrant adjusting our policy stance.
But to what extent will the Fed move given that inflation hasn’t fully come to heel?
That’s what we’ll find out in the dot plot.
If Louis is right and the updated projections show four quarter-point cuts coming, it would be supportive for stocks – as long as Wall Street continues to believe the damage in the labor market hasn’t gone too far, too fast.
But rate cuts won’t automatically be the “calvary coming to the rescue”
As veteran trader Jonathan Rose reminds us, the bond market has a voice of its own – and just because the Fed might be cutting rates, that doesn’t mean bond traders will play along.
Backing up, after the longest inversion in history, the yield curve has finally flipped back into positive territory. Some see that as a green light for the economy, while others view it as calm before the storm. Whatever it is, it’s not insignificant.
As Jonathan writes in Saturday’s Masters in Trading: Live update:
It isn’t noise, it’s the market’s smoke alarm.
Through the fed funds rate, the Fed can tug at the short end of the yield curve – 3-month, 6-month, 2-year yields. But the long end (the 10-year and 30-year) belongs to the market. The Fed can’t change those rates.
So, even though Powell & Co. are poised to cut rates next week – and possibly for months to come – Jonathan has a warning:
The long end could actually rise at the same time.
That kind of steepening isn’t healthy. It’s artificial, it’s political.
And while the Fed tries to “thread the needle,” the free market pushes back.
That pushback matters for traders like Jonathan.
He writes that, in the near term, stocks could cheer cuts, with rate-sensitive sectors like tech, REITs, and growth companies getting a lift. But the risk is what happens after…
If unemployment continues to tick higher, corporate earnings will weaken, just as long-term borrowing costs climb. That’s not the sort of steepening that fuels bull markets.
Back to Jonathan:
A truly supportive steep curve gives markets room to run. A policy-driven steepening does the opposite.
It means borrowing costs for mortgages, corporate bonds, and long-term investment rise just as the Fed is trying to stimulate growth.
That disconnect has marked the start of trouble in past cycles — 2007–08 being the clearest example.
Jonathan’s recommendation?
Enjoy the rally if/when cuts arrive, but keep your eyes on the bond market.
If long-dated bond yields rise significantly, the action step isn’t necessarily “get out of the market”
But it would be “be smarter about how you trade the market.”
On that note, we continue to urge you to look at Lyft Inc. (LYFT), which is one of Jonathan’s trades we recently put on your radar.
You can get the full story in our August 11 Digest here, but in short, within President Trump’s recently passed “Big Beautiful Bill” is a retroactive change to how U.S. companies can expense their research and development – and it’s a huge tailwind for Lyft.
Since we profiled Jonathan’s work in that Digest, LYFT shares have soared 40%.
As for Jonathan, he recommended his Advanced Notice subscribers buy LYFT calls on August 28 – two weeks ago today. Yesterday, they closed out the trade for a 209% profit.
I reached out to Jonathan to get his thoughts on Lyft today. Given that he just closed the trade, does that mean newcomers are too late?
From Jonathan:
This isn’t a “too late” trade — it’s a “just getting started” trade.
The run from $13.50 to $19 was the easy money, but it also woke up institutions to the R&D tailwind that’s still being priced in.
LYFT has been a forgotten stock, and that’s exactly why I liked it. Now it’s coming back on the radar.
If you’ve already taken profits, great — that’s discipline. But don’t walk away. LYFT can still push higher, and I want exposure on any controlled pullback.
In other words: Book your gains, but keep some skin in the game.
We’ll continue to track and report back.
And to catch Jonathan each day in his free Masters in Trading: Live updates (where he’ll tip you off on trades like LYFT), click here.
Checking in on Luke Lango and the All-In Summit
Luke, our technology expert, is currently at the All-In Summit in Los Angeles. It’s an exclusive, high-profile conference organized by the four venture capitalist hosts of the popular All-In podcast.
He’s reporting his insights and takeaways in his Innovation Investor Daily Notes.
In Luke’s first report back, which we highlighted yesterday, uranium and nuclear energy was a huge topic – after all, how are we going to power all our AI advancements? In his second update, robots took center stage.
From Luke’s Daily Notes:
Everywhere you look, there are robots on display: a humanoid from Unitree striding confidently, a Boston Dynamics dog leaping for applause, a Chef Robotics arm boxing food with superhuman speed.
It feels less like science fiction and more like the early innings of history being written…
Robots are here, in the flesh (or carbon fiber and steel), and it’s stunning to see the progress.
The energy in the room confirms what we’ve been saying for months now: The Physical AI wave has officially arrived.
Luke writes that the excitement is real, the progress undeniable – but the mood in the room also reminds him of how bubbles begin:
You can sense it in every conversation and every presentation. Investors and founders racing ahead, convinced the future is theirs to claim.
That kind of energy is exciting. But it also tells us something important… that the seeds of the next great tech bubble are already being sown.
Still, Luke stresses that any AI (or robot) bubble is not here yet
He points to Rene Haas, CEO of Arm Holdings (ARM), who, in Luke’s words, “essentially said: if you think the AI chip boom has peaked, think again.”
Haas said that “billions of devices” powered by AI silicon will eclipse today’s data center demand.
Meanwhile, Uber Technologies Inc. (UBER) CEO Dara Khosrowshahi is preparing for a future where autonomous cars and even flying taxis become mainstream. Khosrowshahi expects that aerial ridesharing will become a real business line within the decade.
And Luke highlighted Demis Hassabis, CEO of Google DeepMind, speaking about his company’s latest push into multimodal AI. Luke’s takeaway is that if Alphabet Inc. (GOOGL) becomes the market leader for supplying robotic operating systems, “that’s a multitrillion-dollar rerating waiting to happen.
Here’s his overall takeaway from Day 2:
If you came into this event worried that the AI boom was fizzling, you would have left convinced that it’s only just beginning…
The robots are here now, and any potential tech bubble is still a ways off.
Investors who don’t position themselves accordingly today are going to miss one of the biggest technology booms of our lifetimes.
You can be sure that Luke will be leveraging what he learned at the conference to steer his subscribers into the best related investments. To learn about joining Luke in Innovation Investor to access those coming picks and insights, click here.
Before we sign off, a reminder to catch Eric Fry’s “10X” replay
Yesterday morning, our macro strategist Eric Fry introduced Apogee, his first quantitative stock-picking system in more than three decades of investing.
This new system was designed by analyzing the common traits behind Eric’s 41 different recommendations that each went on to generate gains of 1,000% or more – along with the countless triple-digit winners he’s recommended over the years.
Back-testing Apogee against 14,000 stocks and 31 years of market history produced impressive results: a 72%-win rate and an average gain of 308% on those winners.
If you missed the live presentation, there’s still time to watch the full replay for free.
In it, you’ll get a complete breakdown of how Apogee works – plus the names of five brand-new stocks the system has flagged as potential 10X opportunities.
We’ll keep you updated on all these stories here in the Digest.
Have a good evening,
Jeff Remsburg
