The Stock Market's Inflation Fantasy Ends This Week

seekingalpha2023-07-10

This week will mark a big turning point for the stock market and investors still living in fantasy land and their view on inflation. Yes, CPI for June is expected to rise by just 3.1% y/y when it is ...

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CapybaraNDU
2023-07-10
CapybaraNDU
Good try

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Yes, CPI for June is expected to rise by just 3.1% y/y when it is ...</p>\n\n<a href=\"https://seekingalpha.com/article/4615927-stock-markets-inflation-fantasy-ends-this-week\">Source Link</a>\n\n</div>\n","source":"seekingalpha","html":"<!DOCTYPE html>\n<html>\n<head>\n<meta http-equiv=\"Content-Type\" content=\"text/html; charset=utf-8\" />\n<meta name=\"viewport\" content=\"width=device-width,initial-scale=1.0,minimum-scale=1.0,maximum-scale=1.0,user-scalable=no\"/>\n<meta name=\"format-detection\" content=\"telephone=no,email=no,address=no\" />\n<title>The Stock Market's Inflation Fantasy Ends This Week</title>\n<style type=\"text/css\">\na,abbr,acronym,address,applet,article,aside,audio,b,big,blockquote,body,canvas,caption,center,cite,code,dd,del,details,dfn,div,dl,dt,\nem,embed,fieldset,figcaption,figure,footer,form,h1,h2,h3,h4,h5,h6,header,hgroup,html,i,iframe,img,ins,kbd,label,legend,li,mark,menu,nav,\nobject,ol,output,p,pre,q,ruby,s,samp,section,small,span,strike,strong,sub,summary,sup,table,tbody,td,tfoot,th,thead,time,tr,tt,u,ul,var,video{ font:inherit;margin:0;padding:0;vertical-align:baseline;border:0 }\nbody{ font-size:16px; line-height:1.5; color:#999; background:transparent; }\n.wrapper{ overflow:hidden;word-break:break-all;padding:10px; }\nh1,h2{ font-weight:normal; line-height:1.35; margin-bottom:.6em; }\nh3,h4,h5,h6{ line-height:1.35; margin-bottom:1em; }\nh1{ font-size:24px; }\nh2{ font-size:20px; }\nh3{ font-size:18px; }\nh4{ font-size:16px; }\nh5{ font-size:14px; }\nh6{ font-size:12px; }\np,ul,ol,blockquote,dl,table{ margin:1.2em 0; }\nul,ol{ margin-left:2em; }\nul{ list-style:disc; }\nol{ list-style:decimal; }\nli,li p{ margin:10px 0;}\nimg{ max-width:100%;display:block;margin:0 auto 1em; }\nblockquote{ color:#B5B2B1; border-left:3px solid #aaa; padding:1em; }\nstrong,b{font-weight:bold;}\nem,i{font-style:italic;}\ntable{ width:100%;border-collapse:collapse;border-spacing:1px;margin:1em 0;font-size:.9em; }\nth,td{ padding:5px;text-align:left;border:1px solid #aaa; }\nth{ font-weight:bold;background:#5d5d5d; }\n.symbol-link{font-weight:bold;}\n/* header{ border-bottom:1px solid #494756; } */\n.title{ margin:0 0 8px;line-height:1.3;color:#ddd; }\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nThe Stock Market's Inflation Fantasy Ends This Week\n</h2>\n\n<h4 class=\"meta\">\n\n\n2023-07-10 08:05 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4615927-stock-markets-inflation-fantasy-ends-this-week><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>This week will mark a big turning point for the stock market and investors still living in fantasy land and their view on inflation. Yes, CPI for June is expected to rise by just 3.1% y/y when it is ...</p>\n\n<a href=\"https://seekingalpha.com/article/4615927-stock-markets-inflation-fantasy-ends-this-week\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":".IXIC","symbol_name":"NASDAQ Composite","start_time":0,"source_url":"https://seekingalpha.com/article/4615927-stock-markets-inflation-fantasy-ends-this-week","article_id":"2350978771","we_media_id":null,"thumbnails":[],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2350978771","pubTimestamp":1688947500,"columns":[],"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"This week will mark a big turning point for the stock market and investors still living in fantasy land and their view on inflation. Yes, CPI for June is expected to rise by just 3.1% y/y when it is r","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{".IXIC":"NASDAQ Composite",".SPX":"S&P 500 Index",".DJI":"道琼斯"},"translate_title":"股市的通胀幻想本周结束","themeId":"","isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{".DJI":1.1,".IXIC":1.1,".SPX":1.1},"content_text":"This week will mark a big turning point for the stock market and investors still living in fantasy land and their view on inflation. Yes, CPI for June is expected to rise by just 3.1% y/y when it is reported on Wednesday, but based on several factors, that could be the low print for the rest of the year.The equity market has fantasized about a Fed rate-cutting cycle for nearly a year now, and that is going to an end come Wednesday, when the market realizes that the disinflation process of the past six months is over and inflation begins to rebound.For June, analysts see the headline CPI rising by 0.3% m/m, faster than last month's 0.1% increase. Meanwhile, core CPI is expected to rise by 0.3% m/m, down from a gain of 0.4% last month, and by 5.0% y/y, down from 5.3% in May.Inflation Is Already BackYes, the June headline print of 3.1% will be the lowest reading since March 2021, but let's not forget that base effects are primarily at play here, following a very aggressive rise in the CPI in May and June last year where the disinflation tailwinds of the past 12 months will now become inflation tailwinds moving forward.The non-seasonally adjusted consumer price index is used to determine the year-over-year changes in the inflation rate. It is clear and easy to see that the CPI flatlined from June 2022 until December 2022. But more importantly, it has reaccelerated since January 2023.BloombergTherefore, as we move forward and the index rises, it is compared to a value that stagnated for the next six months. In fact, for the first five months of 2023, the CPI non-seasonal adjusted has risen 2.47% or at an annualized rate of 6.1%.BloombergCPI inflation swaps agree with current analysts' estimates and are pricing a 3.0% y/y increase for June. Inflation swaps have been unchanged now for weeks. However, what is important here is not the rate of change; it is what the CPI swaps imply the month-over-month non-seasonality adjusted CPI change in June will be.BloombergTo achieve a gain of 3.0% y/y in June, the CPI index needs to rise by 0.4% versus May. A gain of 0.4% m/m increase in June would mean that for the first six months of 2023, the CPI has risen by 5.9% on an annualized basis. This means that inflation has returned in 2023 and that this disinflation process we have witnessed over the past year has slowed and reversed to some degree.BloombergInflation May Re-AccelerateThe sticky nature of inflation and the slower-than-expected disinflation process is partially due to services inflation being sticky and goods inflation staying higher than its pre-pandemic levels. CPI goods inflation before the pandemic averaged about 0% growth from 2000 until 2020, while services inflation averaged roughly 2.8% year-over-year growth. However, services CPI is currently around 6.6%, while CPI goods inflation is presently about 2%. The lack of disinflation in goods and services is the primary reason inflation has struggled to come down, as many expected.BloombergTo make matters worse, the biggest driver of disinflation over the past year has been the collapsing energy prices, but even those comparables are about to get much harder not only heading into the end of the year but also because it seems that commodity prices such as oil and gasoline may begin to rise again, as both of those commodities technically look like they are ready to make a move higher. It will only take a minor move in the price of gasoline to become additive to inflation in the second half of the year.BloombergAdditionally, it will only take a move into the mid-80s for oil prices to become additive to inflation into the year's second half. Given the recent consolidation in oil prices in the low 70s, a move into the mid-80s is the next resistance level for the commodity.BloombergAdditionally, health insurance inflation which has added a tailwind to falling inflation rates will reset. Bloomberg estimates that health insurance costs will go from a providing 2.8 bps m/m drag on inflation to a 0.7 bps contributor to inflation in the autumn.Higher Interest Rates Are A Problem For StocksThe prospects for inflation to remain elevated in the second half of 2023 will also mean that rates which are now steadily rising, are likely to continue to rise, aided by the stronger-than-expected labor market and economy. Following the June job report, rates on the longer end of the yield curve have already broken out. This week's CPI inflation print and the realization that inflation may be heading higher throughout 2023 could push yields back to the October 2022 highs.The 10-year rate has broken through key resistance at 3.9% and is testing another resistance level at 4.1%. But once the 10-year pushes past 4.1%, there is room to return to its October highs.BloombergMeanwhile, the 30-year rate has also pushed above resistance at 4% and broken above a critical downtrend. The 30-year has made much more progress than the 10-year and could already be on its way back to March's highs.BloombergThe higher nominal rates rise, the higher real yields will increase, and real yields are the most significant driver for stock valuations. However, more recently, there has been a massive separation between real rates, especially the NASDAQ 100. The spread between the NASDAQ 100 earnings yields has fallen to just 1.2%, the lowest the spread has been since the mid-2000s. It suggests that the NASDAQ 100 is very expensive compared to real yields and is a significant separation from how the market has valued stocks over the past decade.BloombergThe disinflation process of the past six months will be a thing of the past come Wednesday, and the bond market has already been adjusting to the prospects of a strong economy and a higher inflation rate. However, the equity market has detached itself, thinking the inflation problem has been solved and that the Fed would be cutting rates. Instead, quite the opposite is happening, which means the days of the stock market ignoring reality are here, and fantasy time is over.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[{"id":196278251167912,"gmtCreate":1688957038018,"gmtModify":1688957042045,"author":{"id":"4091449914273180","authorId":"4091449914273180","name":"CapybaraNDU","avatar":"https://static.itradeup.com/news/45f43895513a14a93d9fef520100f642","vip":1,"hat":"https://static.tigerbbs.com/f84d87792f02cf78e80ee34979fd31e5","crmLevel":5,"crmLevelSwitch":1,"idStr":"4091449914273180","authorIdStr":"4091449914273180"},"htmlText":"Good try","listText":"Good try","text":"Good try","images":[],"top":1,"highlighted":1,"essential":1,"paper":1,"likeSize":4,"commentSize":0,"repostSize":0,"link":"https://ttm.financial/post/196278251167912","repostId":2350978771,"repostType":4,"isVote":1,"likeStatus":false,"favoriteStatus":false,"reportStatus":false,"tweetType":1,"langContent":"EN"}],"isCommentEnd":false,"newsSizeData":{"likeSize":43,"commentSize":1,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.30.0","shortVersion":"4.30.0","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2350978771"}