What the Latest Inflation Data Means for Rate Cuts This Year…


AI overhyped - What the Latest Inflation Data Means for Rate Cuts This Year…

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Wall Street was laser-focused on two key inflation reports this week: the Consumer Price Index (CPI) and the Producer Price Index (PPI).

Prior to this week’s consumer and wholesale inflation data, it appeared to be a foregone conclusion that our central bank would cut key interest rates for the first time in June.

But now, the Federal Reserve has found itself in a bit of a pickle. As I explained to my Growth Investor subscribers in their Weekly Update yesterday, Fed Chair Jerome Powell will now have a difficult time convincing Fed officials to cut key interest rates in June.

The reality is both of these reports are critical factors in the Fed’s decision-making process on when to begin cutting rates. So, in today’s Market 360, we’ll try to make some sense of these reports and what they mean for the likelihood of rate cuts this year (and how many). I’ll also share how you can best position your portfolio for profits, no matter what happens with interest rates.

Deciphering the Latest Inflation Reports

Consumer Price Index (CPI)

The Consumer Price Index (CPI) reading for March was released first thing Wednesday morning – and the data came in hot.

Headline CPI rose 0.4% in March and was up 3.5% in the past 12 months. That’s equal to February’s month-over-month increase, but up from February’s 3.2% annual number. Economists were forecasting a 0.3% monthly increase and a 3.4% annual increase.

Core CPI, which excludes food and energy, wasn’t any better: It also rose 0.4% in March and was up 3.8% in the past 12 months, which exceeded expectations for a 0.3% monthly rise and 3.7% annual pace.

Taking a closer look at the details…

  • Energy prices weighed on headline inflation, rising 1.1% last month after rising 2.3% in February. Additionally, energy prices are up 2.1% in the past 12 months.
  • Gas prices increased 1.7% in March after rising 3.8% in February.
  • Food costs rose 0.1% in March and are up by 2.2% over the past 12 months.

As I’ve noted in my previous commentary on CPI reports, we really want to see the stubbornly high shelter costs come down. However, they unfortunately continue to weigh on the CPI and account for more than half of the increase. Shelter costs were up 0.4% in March and 5.7% in the past 12 months.

Wall Street was not pleased, and all of the major indices tanked on Wednesday. The S&P 500 ended the day down by 0.95%, the Dow fell by roughly 1.1% and the NASDAQ lost 0.8%.

Producer Price Index (PPI)

On Thursday morning, the Labor Department released the Producer Price Index (PPI) for March.

Now, the PPI tells us what producers are paying for goods and services before they reach consumers. It’s considered a good leading indicator of inflation, so market watchers were eager to see if there were any hopeful signs after Wednesday’s poor CPI report.

So, let’s dig into the numbers…

  • The PPI rose 0.2% in March, down from a 0.6% gain in February and less than the 0.3% gain economists expected.
  • Headline PPI was up 2.1% in March year-over-year. That’s the biggest jump in nearly a year, but economists had forecast a 2.2% increase.
  • The services component of the PPI was the main culprit for last month’s increase, as services prices rose 0.3%.

The bright spot in the report was wholesale goods prices, which dipped 0.1% in March. That means wholesale prices have fallen in five of the last six months.

The two big reasons there’s deflation on the wholesale level are a strong dollar, which lowers the cost of imported goods and commodities, and deflation in China.

The U.S. continues to import deflation from China, as there is a glut in everything from solar panels to electric vehicles that are manufactured there and imported to the U.S. and Europe. The reality, though, is that wholesale prices still remain stubbornly high.

What This Means for the Fed (And Investors)

In light of the hot inflation data, the question now is: Will the Fed still cut rates this year?

Prior to the disappointing inflation data this week, many traders were already anticipating that the Fed may only cut key interest rates twice this year, down from previous estimates for three rate cuts.

Due to rising rates, Fed Chair Jerome Powell will have difficulty achieving consensus for a rate cut at the June Federal Open Market Committee (FOMC) meeting. So, most folks now anticipate the first cut will come in July. If it’s pushed much further out than that, then the Fed will have to contend with the presidential election spotlight – and it wants to avoid that.

Personally, I would like to see the Fed coordinate their rate cuts with the European Central Bank and the Bank of England, who have sent clear signals that they will cut in June. But regardless, I don’t want you to worry. As I always like to say, your best bet for profits is in fundamentally superior stocks – and that’s true regardless of what the Fed does.

How You Can Profit in Any Environment

Investors clearly weren’t happy with these inflation reports. This week, the S&P 500 lost nearly 1.6%, while the Dow shed 2.4% and the NASDAQ lost about 0.5%.

But now that these reports are in the rearview mirror, I expect Wall Street to focus in on the first-quarter earnings announcement season, which officially kicked off on Friday.

So, while the inflation data was disappointing and the market’s subsequent plunge was gut-wrenching, I view this week’s pullback as an excellent buying opportunity. In fact, as I told my Growth Investor subscribers, we may realize this was one of the best buying opportunities of the year.

I like to say that there are about four months a year when markets are very efficient, and that’s during earnings season. As I’ve pointed out before, this earnings season should be quite strong, and I expect wave-after-wave of positive earnings results to dropkick and drive our fundamentally superior stocks higher.

The stocks in our Growth Investor Buy Lists fit the bill perfectly – they are characterized by 138.6% average annual earnings growth and 17.6% average annual sales growth and have benefited from positive analyst revisions in the past three months.

In fact, yesterday I told my Growth Investor subscribers about the next disruptive wave of innovation that’s set to change the world – and the tiny Maryland-based company behind it…

Some experts predict it could be the next NVIDIA Corporation (NVDA) – a stock that’s made us nearly 2,000% over at Growth Investor.

But you should know that this has nothing to do with AI, 5G, Bitcoin or any other technology you’ve probably heard of…

Get the details on this cutting-edge technology – and how it could impact your portfolio – here.

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Editor, Market 360

The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:

NVIDIA Corporation (NVDA)

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