PPI inflation comes in hot … the markets take it in stride … which way will the 10-year Treasury yield break? … meme stocks are back – Jonthan Rose’s thoughts on a new trade today This morning, the first of this week’s three inflation reports came in hotter than expected.
The Producer Price Index (PPI), which is a gauge of wholesale prices, jumped 0.5% in April. This topped the Dow Jones estimate of 0.3%.
Core PPI, which strips out volatile food and energy prices, also rose 0.5%. This was well-above the 0.2% Dow Jones estimate.
On a year-over-year basis, things were better. Headline and core PPI rose 2.2% and 2.4%, respectively. Both these figures were in line with estimates.
As I write early afternoon, the market is shrugging off the news. This is mostly because March’s data were revised lower. Whereas the initial reading was a 0.2% monthly gain, the latest revision shows a decline of 0.1%.
So, what’s the bottom line from this morning’s PPI numbers?
Well, this certainly wasn’t a “win” in our battle against inflation. It gives Federal Reserve Chairman Jerome Powell no new ammunition to cut rates earlier than hoped. However, the data weren’t hot enough (especially after the March revision downward) to spook Wall Street into a selloff. We’ll give it a “no damage done” verdict.
Tomorrow, we’ll get the April Consumer Price Index report. It has more market-moving firepower depending on how the data comes in. We’ll keep you updated. ADVERTISEMENT  The former floor trader who averaged $2 million in profits for five years straight, reveals the unusual options technique that could hand you gains as high as 197%, 317%, even 1,147% in 30 days or less.
Click here for the details. Meanwhile, last Friday’s Federal Reserve Bank of New York survey showed that consumers believe inflation is picking up steam When you listen to Fed Chair Powell speak in his live press conferences, you might have picked up on a phrase he often uses – inflation expectations remain “well anchored.”
For example, here’s Powell after the Fed’s May meeting: We remain committed to bringing inflation back down to our 2 percent goal and to keeping longer-term inflation expectations well anchored. This “anchoring” of expectations is critical because inflation has a huge psychological component. If consumers become convinced that inflation will worsen, they’ll buy goods and services today at prices that they believe will be lower than prices tomorrow.
Of course, it’s this very buying pressure that results in higher demand, fueling price increases. It’s a self-reinforcing feedback loop.
On Friday, we learned that consumers’ beliefs about inflation are moving in the wrong direction.
From Bloomberg: US consumer expectations for inflation and home prices rose in April while perceptions of the labor market weakened, underscoring an uneasy backdrop for household finances and the cost of living.
Consumers expect prices will climb at an annual rate of 3.3% over the next year after hovering around 3% for the past four months, a Federal Reserve Bank of New York survey showed.
That marked the highest reading since November. Anticipated home price growth rose at a similar pace — the fastest advance since July 2022. The good news is that this inflation expectation is only for the next year. If we look father out to consumers’ 5-year expectation, it falls to 2.82%.
The other good news it that consumer expectations can shift quickly. For more on this, let’s jump to our hypergrowth expert, Luke Lango. From Friday’s Daily Notes in Innovation Investor: Consumer inflation expectations jumped in May, but we wouldn’t put too much stock in this jump. [The jump to 3.3%] pushed consumer inflation expectations above their pre-pandemic range.
It is worth noting that consumer inflation expectations are highly volatile. They tend to spike one month, then collapse the next, then spike the next, so on and so forth.
Given this volatile history, we wouldn’t place too much stock in this one-month jump in consumer inflation expectations. We think, given newfound disinflationary trends, inflation expectations will plunge over the next month. While consumer inflation expectations are important to watch, the more immediate influence on your portfolio will be which way the 10-year Treasury yield breaks For newer Digest readers, the 10-year Treasury yield is the single most important number for the global economy and investment markets. All sorts of interest rates and asset values are directly impacted by whether the 10-year Treasury yield rises or falls.
For stocks, a higher yield is typically a headwind for two main reasons.
One, when analysts estimate a stock’s value, they use what’s called a “discount rate,” which is heavily influenced by the 10-year Treasury yield. Given the math involved, the higher the discount rate, the lower the net present value of a company’s future cash flows – which means lower stock prices.
Two, a higher 10-year Treasury yield entices some investors to pull their money out of stocks to benefit from this “risk free” higher yield (it’s risk free when a government bond is held to maturity). That puts downward pressure on stock prices.
With this context, below you can see how the 10-year Treasury yield has fallen to its up-trending support line.  If support holds, resulting in a bounce that sends yields higher into this trading channel, it will create a fresh headwind against stock gains. But if this support level breaks, it’s likely to fuel a new leg higher for the market.
Let’s return to Luke for his take: Sustained weak economic data suggests Treasury yields will crash in the next few weeks.
After [last Friday’s] weak Consumer Sentiment Report, Citi’s Economic Surprise Index dropped to -18.5 – its lowest reading since January 2023, and before that, late summer 2022.
In other words, the economic data is currently weaker-than-expected by one of the widest margins in the past 18 months.
Citi’s Economic Surprise Index closely tracks changes in Treasury yields. We therefore think that the recent spate of sustained weak economic data supports lower Treasury yields in May. If Luke’s right, look for the 10-year Treasury yield to crash through this support level, which should fuel a rally into the summer months. ADVERTISEMENT  Using this device you see above…
Elon Musk just tested a new type of AI that according to Wired Magazine will usher in…
“The next step in human evolution.”
Click here to see the details because a lot of people could get rich from this new invention. Switching gears, are we about to see another meme stock explosion? Yesterday, shares of GameStop (GME) triggered a circuit breaker “stop” after shares soared 81%. As I write Tuesday, they’re up again.
Here’s the 1-minute chart of GME’s collective two-day performance as of early-afternoon Tuesday – a 139% gain.  Behind the buying pressure is the news that “Roaring Kitty,” aka Keith Gill, just posted online for the first time in three years.
Gill’s claim to fame is championing the 2021 day-trader campaign against institutional investors who had been betting on GameStop’s demise. This forced a short squeeze for the ages that crushed some of these institutional investors while creating fortunes for some of the retail traders who had the foresight to get out near the top.
Here’s Forbes: Despite the post including no text or context, Gill’s former cronies on retail investor online communities such as Reddit’s WallStreetBets celebrated his return to the public eye, with posts on Reddit accumulating tens of thousands of likes, comparing Gill’s potential reemergence to that of the messianic protagonist in the popular “Dune” book and film series. So, is this an easy trade opportunity? Yesterday, Jonathan Rose of Masters in Traders Live weighed in during his Daily Livestream. It turns out, Jonathan was one of the earliest analysts to pick up on the original GameStop (GME) short squeeze back in 2020. This happened after Jonathan noted that GameStop’s short interest was over 100%.
This early awareness of GME’s move prompted Jim Cramer of the TV show Mad Money to give Jonathan a public congrats on the “big money” Jonathan had made his viewers.  On that note, Jonathan helped one of his viewers get into GME at $4.52 (shares eventually hit a high of $483). This particular follower invested $567 and turned it into about $30,000.
Jonathan retold this story in yesterday’s Livestream with screenshots to back up everything. If you’re one of Jonathan’s followers, you can click here to log in and view yesterday’s episode, and to get his thoughts on a GME trade right now. ADVERTISEMENT  Already, MULTIPLE billionaires have moved huge sums of money into an under-the-radar AI profit opportunity.
The good news is, you can join them and tap into a $3 billion reservoir of cash that currently yields huge, retirement-boosting payouts.
Here’s the full analysis of this opportunity. If Jonathan is a new name for you, he’s the latest addition to our corporate family, now helming the trading service Masters in Trading Live Last week, Jonathan held a live event that walked viewers through how he’s made over $10 million in trading profits over his career.
If you missed it, I encourage to watch a free replay right here. We’re taking it down tomorrow at midnight, so please give a look while it’s still available.
Circling back to the top of this Digest and inflation, all eyes are on tomorrow’s CPI report.
We’ll bring you the details here in the Digest. Have a good evening, Jeff Remsburg | | |
Post a Comment
Post a Comment