The May CPI report released yesterday was considered the first inflation gauge to show how tariffs are affecting prices. Before I can assert that the coast is clear, I would like to look at a few more months of inflation report, but the May CPI is encouraging. For the fourth consecutive month, CPI was below Wall Street estimates. Monthly CPI and core CPI rose 0.1% compared to forecasts of 0.2% and 0.3% respectively. The annual inflation rate based on the last three months is 1.35%, well below the Fed’s 2.00% target.
Interestingly, new and used cars prices and apparel fell in May. Some forecasters thought that these items were likely to be seeing higher prices due to customs duties. Prices for new cars fell 0.3%, while prices for apparel and used cars fell 0.4%. This suggests that businesses are finding ways to limit higher cost pass-throughs due to tariffs. In future revenue reports for companies in these industries, are profit margins weaker than expected?
Shelter prices are sticky, rising 0.3%, accounting for a total increase in CPI, and then some. At WIT, the graph below shows that CPI, excluding shelter prices, was slightly negative in yesterday’s report, running at just 1.50% year-on-year.
The probability of a Fed’s disconnection is close to zero percent at next week’s meeting. But with another benign inflation report in hand, traders are raising expectations for two cuts for the remainder of the year.
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Market trading updates
Yesterday we discussed Recent recent rally suggests that bull markets have returned, and fears of secondary revisions are likely to be exaggerated. Sentiment Trader Recently we discussed another indication that such a thing is true.
“Three of the ‘Big 4’ indexes are back. The three most followed US stock indices recovered within 5% of their multi-year highs. This is a notable recovery from at least -15% drawdowns on the S&P 500, DoW Industrials and Nasdaq composites.
The table below shows how the S&P 500 worked after recovering three within 5% of its three-year height after falling at least 15% in the last 50 sessions. On average, current drawdowns were less than -4% between the three. As sentiment traders pointed out:
“We have never witnessed such a rapid recovery in all three indexes. But they were good for the S&P 500 from available history. It ultimately succumbed to the 2020 pandemic panic, but it continued to show higher power every time over the next three to six months.”
“What’s even more noteworthy than that consistency was that there was little risk within the next six months. The S&P didn’t fall by more than -4.4% at any point in that time frame (but again, this is a small sample size), but the maximum gain exceeded everything.”
The bottom line means that many stories still suggest different stories “Shoes fall off” At any time, fundamental technical recovery, breadth and momentum indicate that it probably isn’t. As sentiment traders conclude:
“The fact that three of the most widely adhered and benchmarked indices have already recovered most of the modest drawdowns is also a positive indication. Over the past 50 years, none of all three major indices have recovered very quickly from such heavy sales pressure. But when it happened it worked for further recovery. This is particularly good sign for the high-tech NASDAQ, and has bolstered some of the other studies published in recent weeks. ”
This does not mean that the market does not have short-term pullbacks or integrations. However, you will need to use these integrations and pullbacks to add stock exposure to your portfolio. If you are a low-weight stock, be patient and choose an entry point opportunistically to reverse positioning.
Exports to the US to China are collapsing: Don’t believe in the hype
Courtesy of Robin Brooks of Brookings Institution, the following set of graphs shows how tariffs have changed exports from Asia to the US. The simplest yet wrong is that exports from China to the US are falling apart. At the same time, they are surged in Indonesia, Malaysia, Singapore, Thailand and Vietnam. These other countries also face heavy tariffs and what we see is called transportation, given that US importers didn’t have enough time to find new production facilities. Essentially, China ships US carriers to certain countries and removes “.made in china” Labels, and then export them to the US. simply, China is not as painful as the graph suggests.
Deficits and the tradeoffs needed to fix them
By significantly lowering its intended savings target, the DOGE program highlights substantial challenges that will reduce federal spending and prevent efforts to reduce deficits. Furthermore, the failure suggests that a more convenient way to reduce deficits could be to increase federal revenue. Therefore, we pose simple hypothetical questions. What if the government doubles its tax overnight?
We don’t support or promote larger deficits, but this article better understands how financial deficits are part of the larger picture, and is part of the trade-off between private and public sector deficits and surplus.
Your opinion on the fiscal deficit may change after reading this article.
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