Jim’s Notes – “Cooler” CPI Sparks Upside Run

Moving the Market – May 15th

CPI was “cooler” than expected and the markets reacted to the upside as hope and speculation relative to interest rates continued to drive stocks. Inflation is still 3.4% annually through April. The supercore inflation rate was 0.5% Y/Y 5.05% in April the highest in 12 months. The storyline being peddled by the media and the White House is inflation is improving Really go to the store and let me know how much prices have dropped. Enough said, it doesn’t matter what I think or believe it matters what the market does that concerns me. I needed to make 2.8% on SOXX yesterday on $100,000 to keep pace with the inflation rate based on spending $60,000 per year. If the earnings are taxable, I am behind pace, and will need to make another 1% today… this is insane. Throw in the rest of the economic data on Wednesday and the storyline becomes more insane. Retail sales slowed to 0% growth… by the way, that includes the higher prices not accounted for by inflation. The Empire State Manufacturing index for May dumped lower. Weaker data, weaker dollar, lower interest rates, inflation, etc. all make for new all-time highs… welcome to the upside-down world we live in. BTW the everyone is concerned about cutting interest rates… the Fed is concerned about the liquidity… M1 and M2 were both higher last month… the Fed is putting money in the system to keep it going… thus inflation will not cool anytime soon, but it will get the job done until the election. Then bar the doors and watch the aftermath. All said, markets hit new all-time highs on the hope and speculation that is Wall Street and the White House. The cost of consumption is still rising. The things we consume virtually daily, gasoline, food, medical, education, etc. are still rising. Yes, less consumed goods, computers, TVs, cars, etc are steady to declining, but that doesn’t help us day to day relative to inflation. The average consumer lives paycheck to paycheck. It’s about the reality of economics, not the theory of what will happen over the next two to three years. Someone please call the Fed and explain the simple reality of economics. Thank you.

The major indexes were higher in response to the CPI report and other poor economic data… seems normal these days. The leadership came from REITs and technology. The direction short term has rallied on the belief the Fed’s future actions on interest rates will be to cut. Eleven sectors closed in the green. The NASDAQ closed up 1.4%, DIA was up 0.9%, and the SP500 was up 1.2%. The major indexes closed higher. The SOXX was up 2.2%. Small Caps (Russell 2000) were up 1.2%. The ten-year treasury yield was 4.35% down 10 bps for the day. Crude Oil (USO) was up 0.8%. (UGA) was up 1.5%. Natural gas (UNG) was up 2.5%. The dollar was down 0.6%. Plenty to deal with moving forward as we manage our money and emotions relative to the current environment.

Thursday Outlook: Broad indexes await more economic data and retail earnings. Technology and REITs led the upside Wednesday… The leadership is shifting back towards growth stocks in an environment that points more to defensive or value stocks… thus, the facts don’t matter currently, only what analysts and traders think, or the memes! 1) Watching the dollar, gold, interest rates, and crude oil. Commodities are mixed and seeing some rotation. 2) Mega caps have been lagging the last six trading days, if we are going higher they will need to participate in leadership. 3) SPY and QQQ new all-time highs. 4) TLT, EFA, and EEM seeing the rotation of money flow into the sectors. 5) SOXX moved above the $222.25 level… resumed leadership? 6) XLF, KBE, KRE adding to the upside breakout. 7) XLY is lagging showing a slowdown in the consumer.

Chart of Sectors: The scatter chart below shows the activity of the sectors relative to the S&P 500 index. The red down trendline was broken and the leadership is clear. IYZ, XLF, XLK, and XLV taking the leadership role. Watching how this unfolds moving forward.

Charts to Watch: See Notes on “Reality of the Markets”

Headlines Worthy of Note:

Buffet discloses Berkshire Hathaway has been buying Chubb Insurance company stock (CB). $6.7 billion worth. Up 7.7% on the news. Watch KIE as well with the current uptrend from the April low.

Another retailer struggles in the current economic environment… Burberry missed earnings and same-store sales fell 12%.

Uber is working on growing revenue in new ways. They are offering a US shuttle service to expand on the Costco tie-up to woo price-conscious users.

Quote of the Day: “It is difficult to say what is impossible, for the dream of yesterday is the hope of today and the reality of tomorrow.” — Robert H. Goodard.

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