- Moving the markets
The CPI, which measures the average change in prices of consumer goods and services, rose by 4% in May compared to a year ago. That was the lowest annual increase since March 2021, and in line with what economists had predicted. But the Core CPI, which excludes food and energy prices and is the Fed’s preferred gauge of inflation, jumped by 5.3% over the same period. That was a tad higher than expected but still the lowest rise since November 2021.
You might be wondering how these numbers are calculated, because if you go shopping for anything these days, you’ll notice that prices have gone up much more than these percentages. And to make matters worse, inflation has been growing faster than wages for the last 26 months, which means your purchasing power is shrinking.
The stock market, however, seemed to like these numbers, and the major indexes closed higher. Investors are betting that the Fed will not raise interest rates too soon or too fast, even though inflation is running hot. Some traders think the Fed might skip a rate hike in June, when it announces its policy decision tomorrow.
But not everyone agrees on what the Fed should do. As ZeroHedge summarized this morning, there are different narratives based on different aspects of the inflation data:
• Headline CPI fell (yay, Fed can relax!).
• Goods inflation rose (Fed can pause as services prices slowed down).
• Core CPI was higher than expected and still high (Fed can’t stop, but maybe skip a hike!).
• SuperCore, which excludes volatile items like food, energy, shelter, and medical care, accelerated (Fed should keep hiking!).
The bond market also reacted to the inflation data. After an initial drop, bond yields rose sharply, with the 2-year yield reaching 4% for the first time since March 10th. The dollar, on the other hand, fell after Treasury Secretary Yellen said she “expects a gradual decline in the dollar’s role as a reserve currency.” Ouch.
Gold also had a wild ride. It surged early on, but then plunged as bond yields went up. Remember, gold and interest rates tend to move in opposite directions.
All eyes are now on the Fed’s meeting tomorrow. Will they signal a change in their stance on inflation and interest rates? The Bespoke Investment Group showed this chart of how the S&P 500 performed after the last six Fed meetings.
Will history repeat itself, or will it be different this time?
- “Buy” Cycle Suggestions
The current Buy cycle began on 12/1/2022, and I gave you some ETF tips based on my StatSheet back then. But if you joined me later, you might want to check out the latest StatSheet, which I update and post every Thursday at 6:30 pm PST.
You should also think about how much risk you can handle when picking your ETFs. If you are more cautious, you might want to go for the ones in the middle of the M-Index rankings. And if you don’t want to go all in, you can start with a 33% exposure and see how it goes.
We are in a crazy time, with the economy going downhill and some earnings taking a hit. That will eventually drag down stock prices too. So, in my advisor’s practice, we are looking for some value, growth and dividend ETFs that can weather the storm. And of course, gold is always a good friend.
Whatever you invest in, don’t forget to use a trailing sell stop of 8-12% to protect yourself from big losses.
- Trend Tracking Indexes (TTIs)
The markets cheered the inflation data that came in as expected, and our Trend Tracking Indexes (TTIs) rose further. The major indexes also gained more ground.
Tomorrow, the Fed will try to keep traders happy by not raising interest rates in June. But Friday could be a volatile day, as four types of options contracts expire at the same time. This could cause some swings in the markets, as investors adjust their positions.
By Monday, however, the excitement will be over, and the question will be whether the markets will continue to rise or reverse course by following the adage “buy the rumor, sell the fact.”
This is how we closed 06/13/2023:
Domestic TTI: +3.97% above its M/A (prior close +2.98%)—Buy signal effective 12/1/2022.
International TTI: +7.89% above its M/A (prior close +6.98%)—Buy signal effective 12/1/2022.
All linked charts above are courtesy of Bloomberg via ZeroHedge.
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