If you follow financial media closely, you’d think that inflation is running hot as ever in the economy right now – but you’d be wrong. As a result, you’d miss out on the biggest wealth-creating force in the history of financial markets.
Now, I can’t fully blame the news outlets for missing the story here.
After all, the September Consumer Price Index (CPI) print did come in yesterday with red-hot headline numbers. Consumer prices rose 5.4% year-over-year and 0.4% month-over-month – both above expectations and both huge numbers. News outlets took those numbers and ran with them, publishing a plethora of articles about how inflation in the U.S. economy is hotter than ever.
I’m sure you read a few of those articles…
But here’s the thing: Inflation is cooling off, not heating up.
Why the Media Is Wrong About Inflation
Go look at the bond market. When inflation expectations rise, yields rise. But yesterday, after the CPI print hit the tape, yields plunged. They fell as much as 3 basis points to multi-day lows after the CPI print.
Why? Because the number that actually matters – core CPI, or core inflation less food and energy – rose just 0.2%, slower than expectations. In fact, in September, prices for used cars, apparel, transportation services, and medical services all dropped from August.
The reality here is that inflation was red-hot in April, May, and June, when core CPI was rising by 0.7% to 0.9% every month.
However, since then, core CPI growth has slowed to a crawl, rising by just 0.1% to 0.3% every month, as supply chains have gradually been restored and price pressures have eased.
For what it’s worth, where core CPI growth is today – around 0.2% month-over-month – is the pre-Covid norm for inflation growth. So, in essence, inflation trends are back to “normal.”
That’s why the bond market rallied – and yields dropped – in response to yesterday’s ostensibly red-hot CPI print.
Its also why tech stocks are regaining their strength.
Throughout trading on Wall Street yesterday, rate-sensitive tech and growth stocks were in rally mode, while less rate-sensitive cyclical and value stocks struggled.
We suspect this trend will persist.
Today’s inflation trends are entirely supply-driven. Covid-19 disrupted supply chains over in Asia, reduced manufacturing capacity at the hundreds of production plants over there, and caused an enormous supply shortage. But Covid-19 caseloads globally are dropping.
Government restrictions are easing. And, as these trends persist into 2022, Covid-related supply chain disruptions will abate.
All those 50%-online production plants in China will hit 100% production capacity in 2022. The supply shortage will ease. Demand-supply dynamics globally will rebalance. Inflation will drop off.
As all that happens, tech stocks will roar higher.
Because, at the end of the day, technology is taking over our world. We watch movies through a tech platform called Netflix (NASDAQ:NFLX). We shop through a tech platform called Amazon (NASDAQ:AMZN). We read through a tech platform called Google (NASDAQ:GOOG, NASDAQ:GOOGL). We communicate through a tech platform called Facebook (NASDAQ:FB). We work through a tech platform called Zoom.
Technology is reshaping every facet of our daily lives.
It is the single most disruptive force – and single largest wealth-creating force – in the history of financial markets.
Lots of folks forgot about that in 2021, amid unusually hot inflation trends and a once-in-a-lifetime, never-going-to-happen again physical economy reopening.
But we didn’t. In our flagship investment research product, Innovation Investor, we remained steadfastly bullish on the innovative companies and breakthrough technologies reshaping our lives.
And now, we believe our portfolio is positioned to fly higher.
We earnestly believe that, over the next 12 to 24 months, tech stocks will surge like they haven’t since the late 1990s dot-com boom – and that our portfolio is perfectly positioned to capitalize on this boom.
Mark my words: This is an opportunity you don’t want to miss.
So… what’re you waiting for?
On the date of publication, Luke Lango did not have (either directly or indirectly) any positions in the securities mentioned in this article.