The S&P 500 was up for a fourth consecutive day and is on pace for its longest winning streak since early April. This was on the back of encouraging consumer price index (CPI) data, which bolstered speculation the Federal Reserve will pause its tightening campaign this week.
The CPI rose 4% in May from a year earlier, marking the smallest advance since March 2021. Core services inflation excluding housing (a category which, go figure, many forecasters see as key to the outlook) receded to the slowest pace in 15 months.
While the Fed can breathe a sigh of relief for the moment, they still need to acknowledge that inflation remains well above their 2% target. As Garrett Baldwin said yesterday, it's much easier to get 8% inflation down to 4% than it is to get 4% down to 2%. Today is going to be a big day as Jerome Powell releases what's likely to be the most important interest rate decision news since the start of this hiking cycle.
Join Garrett Baldwin, Chris Johnson and Shah Gilani as they Trade the Fed on this afternoon, starting at 1:45 PM Eastern. If you've never attended one of these free live events before, you're in for a treat; the profits can be amazingly high in just a matter of minutes. Don't miss their recommendations.
Energy Alone Says What the CPI Doesn't
Everyone is focused on the headline CPI number - and that 4% year over year increase, but that doesn’t tell the whole story. Food prices are still high at 6.7%, and shelter was up 8%. Essentially, the only reason we got inflation down to 4% was because of the collapse in energy prices. Gasoline was down almost 20%; fuel oil was down 37%. That’s a big drop by any yardstick, and any push toward higher energy prices could send inflation higher. We could even see higher gas prices if the Fed moves to pause interest rate hikes. That would signal that the economy is on the "right track" and push demand. For now, I’m watching energy prices warily; if we see them going up, it could spell danger for the market.
Commercial Real Estate Can’t Catch a Break
It seems like every day another borrower decides to stop payment on their real estate. Yesterday San Francisco was dealt a big blow after Westfield Corp. (WFD) and its partner Brookfield Properties (BPYPP) decided to stop payment on a $558 million loan on the largest shopping mall in the city. This comes weeks after two major 'Frisco hotels called it quits as well. This is a nationwide problem; it’s not just San Francisco. A pair of Midtown Manhattan office buildings once valued over $40 million just took a haircut to the tune of 40%. These are the earliest rumblings of a property "earthquake" set to shake a $21 trillion behemoth. Shah Gilani is covering all the opportunity this brings right here.