CPI downside surprise allows risk assets to reach new record highs (I'm working on my poetic prowess). Taking stock of stocks S&P at 5,308 with records for Nasdaq and Dow as well. Does one CPI print coming in lower than estimate after 3 straight higher than expected prints really mark a new trend? Does it matter Powell says no hikes ever again or something like that and he’s never pivoted, right? (Remember “we’re along way from neutral” in 2018? )
Headline CPI came in at at 3.4% YoY and 0.3% MoM vs. consensus of 3.4% and 0.4%. The MoM Core reading at 0.3% v. the 0.4% est and prior seemed to be what caused the market to rejoice. Slowing primary and owners equivalent rents, declining car prices were highlighted but there still seem to be some persistent inflation in personal services, healthcare and car insurance
Retail sales were unchanged coming in below consensus and showed a decline in the control group.
Still lots of chatter expressing concerns about labor market and loan delinquencies, guess time will tell.
Yields fell 10bps with markets pricing in about 2 rate cuts, with some pulling forward their forecast for the first cut to come in July. The 2Y is 4.73% and 10Y is 4.34%.
On the day ahead it is jobless claims, housing starts, building permits, import prices, industrial production and capacity utilization on the data front and Fed's Williams as the highlight of Fedspeak.
You can start looking forward to a Presidential debate in June.
XTOD: Forecasters got this month exactly right. Monthly core CPI inflation rate eased off a little from the last few months but still high.
Annual rates:
1 month: 3.6%
3 months: 4.1%
6 months: 4.0%
12 months: 3.6%
Bottom line: A relatively dull report that won't change anything. Inflation is still too high. A tiny bit of easing but no surprise there--there never was any reason to believe underlying inflation was anything like the 4.5% pace we had been seeing in recent months.
XTOD: Ed Yardeni: “If the Fed does start to lower interest rates that could create a meltup” on the S&P 500, meaning “we’d blow right through 5,400 in a heartbeat, and we could very well get to my target of 6,000 for the end of next year by the end of this year.”
XTOD: BMO: “.. it has become clear to us that we underestimated the strength of the market momentum .. As such, we are increasing our 2024 S&P 500 price target to 5,600, which currently represents the highest forecast based on the latest Bloomberg strategist survey. .. the market is behaving in a similar fashion to 2021 and 2023 – years where we did not give enough credit to the strength of market momentum, something we are trying to avoid this time around.” [Belski.
XTOD: The bull case for stocks for year end. It's a magical place where term premiums stay at zero. 30 yr bonds yield 4% AND earnings grow 11% a year this year and next. That level is 6350 or a 19% return. It would require earnings growth AND multiple increases from 21.2 to 23.5 $SPY
XTOD: At my hedge fund, I pay an analyst to walk around parks in Austin, SF, and NY and ask these people who are tanning at 2pm on a Tuesday where they work. We then short the stock.We’re up 728% this year.
https://x.com/jasonfurman/status/1790727407810248876
https://x.com/lisaabramowicz1/status/1790764455178985598
https://x.com/carlquintanilla/status/1790735242522681816
https://x.com/dampedspring/status/1790776362191421683
https://x.com/chrisjbakke/status/1790542675147722789?s=46&t=D2AESCsaw42dAEzgmjXHQA
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