The CPI Takes Control – What It Means for the Fed's Flight Plan VIEW IN BROWSER Imagine you’re piloting a jet through thick clouds. Everything is going just fine – that is, until the gauges flicker. First, the altimeter blinks out. Then, your attitude indicator goes. Airspeed, too. The city lights are far below. The runway’s out there – you just can’t see it. You steady your hands on the controls. Everything’s up to you now – dead reckoning. Every minor adjustment matters now – too high, you stall; too low, you crash. There’s no room for error. That’s the Federal Reserve right now. For months, officials have been trying to guide the U.S. economy to a “soft landing.” However, with the government shutdown delaying key reports like the Producer Price Index (PPI) and U.S. retail sales, and questions about how reliable the remaining data really is, the Fed is effectively flying blind. Friday’s Consumer Price Index (CPI) report is one of the only working indicators left in the cockpit. How the Fed interprets it could determine whether this soft landing sticks… or turns into something rougher. The Fed’s first key interest rate cut at the September meeting was a good start – a gentle nudge on the controls. But the question now is whether it will stay on course or pull up too sharply at the first sign of turbulence. In today’s Market 360, we’ll break down what the latest CPI numbers reveal, why this means the Fed needs to cut key interest rates next week… and why earnings season remains the key to big profits. Plus, I’ll share where you can find fundamentally superior stocks that are poised to profit this earnings season. | Recommended Link | | | | That’s when Nvidia’s silent partner could shock the world… And make a lot of people wealthy in the process. Nvidia and this partner are developing a new tech that, according to the CTO of Cloudera… “Is set to overshadow AI as the next major technological revolution.” Click here to get the details. |  | | CPI on the Radar After weeks of flying blind, the Fed finally has a signal on the screen in the form of yesterday morning’s CPI report. Normally, a government report like this would have been delayed along with the other reports. However, because Social Security’s cost-of-living adjustments depend on the CPI, the Bureau of Labor Statistics released it on schedule. It showed that consumer prices rose 0.3% in September and 3.0% over the past year. Economists were looking for 0.4% and 3.1%, respectively. Core CPI, which strips out food and energy, climbed 0.2% in the month and 3.0% year over year. Economists were expecting 0.3% and 3.1%, respectively.  Breaking down the numbers, the best news in this report came from housing. Owners’ equivalent rent (OER), which measures what homeowners would pay if they rented their own homes, rose just 0.1% in September, its smallest gain since January 2021. Overall shelter costs climbed only 0.2%, down from 0.4% in August. This is important because housing costs have consistently been the single biggest contributor to inflation. Additionally, a 4.1% jump in gasoline prices was the biggest contributor to the month’s increase, even as most other categories were well-behaved. Food prices rose just 0.2% and were up 3.1% year over year. Meanwhile, energy costs were up 2.8% overall, driven by higher electricity and natural gas prices, though gasoline was down 0.5% from a year ago. Vehicle prices remained mixed as new cars gained 0.8%, but used vehicles slipped 0.4%. Overall, the data confirms what the market has already been signaling: Inflation is fizzling. It’s time to turn our attention to the labor market and cut rates. After delaying for months, the Fed made its first rate cut last month. But the bond market is already charting the course ahead. As of this writing, the two-year Treasury yield has slipped to about 3.5% and the 10-year Treasury yield hung around 4%, below the upper range of the current federal funds rate of 4.00% to 4.25%. This shows that investors expect more easing ahead. I’m in the same camp. The reality is the Fed doesn’t fight market rates. When yields move, the Fed eventually follows. The market’s already telling them what comes next – it’s just a matter of how long it takes them to listen. I believe they’re listening now, which is why I expect the Fed to cut key interest rates at next week’s October Federal Open Market Committee (FOMC) meeting. Earnings Keep Us Aloft While Friday’s CPI reading gave the market a nice boost, I look for third-quarter earnings to help power the market higher, too. Through Friday, according to FactSet, 29% of stocks in the S&P 500 had released quarterly results. Of those, 87% have reported positive earnings surprises. So far, earnings for S&P 500 companies are expected to increase 9.2% year-over-year, along with an average 7.4% earnings surprise. When companies with superior fundamentals beat expectations, their stocks take off – and that’s exactly what we’re seeing right now. Case in point: Comfort Systems USA, Inc. (FIX), one of my AI data center stocks in Growth Investor. Comfort Systems makes cooling systems and electrical products for commercial and industrial buildings. Thanks to “unprecedented demand” for the company’s services, third-quarter earnings surged 99.5% year-over-year, along with a 31.2% earnings surprise. The stock soared nearly 20% higher on Friday morning following its earnings announcement on Thursday afternoon, bringing our total gain to about 210% since I added it to my Growth Investor Buy List back in March 2024. This is what my Growth Investor service is built for: Identifying fundamentally superior companies that are steadily growing their sales and earnings. Right now, my Growth Investor Buy List is characterized by 25.3% average annual sales growth and 85.5% average annual earnings growth – the kind of numbers that help investors stay confidently on course even when markets get choppy. As Wall Street hangs on every policy headline for direction, remember this: Earnings remain the true measure of strength, and right now, they’re what’s keeping this market aloft. So, if you want to stay on the right flight path and ride the companies delivering real results, I invite you to join Growth Investor today. (Already a Growth Investor subscriber? Click here to log in to the members-only website.) Sincerely, | .png)
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