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2024-07-13 07:30:00 ET
Summary
- Recent inflation data shows a minimal rise in core prices and a drop in headline CPI, leading to expectations of significant Fed rate cuts over the next year.
- The market's reaction to positive inflation news, highlighted by a sell-off, suggests investors are cautious, knowing more disinflation is needed for further rate cuts.
- Money is shifting to lagging sectors, boosting the equal-weight S&P 500. This indicates a broadening of market strength, presenting new investment opportunities.
Introduction
Ever since the post-pandemic economic reopening caused inflation to fly, the monthly consumer price index numbers have been among the most important data releases.
After all, lower inflation means a path to lower Fed rates. Stubborn inflation means elevated rates and increasing pressure on financial health. That's the short version.
With that said, the most recent report provided great news for the Federal Reserve:
- Core prices (excluding food and energy) rose by 0.1% in June (compared to May). This was less than 67 out of 71 economists expected.
- All-item (headline) CPI declined by 0.1%, pressured by lower gasoline and energy costs.
- On an annual basis, CPI rose by 3.3%, less than expected, with the lowest growth rate since April 2021.