Hot inflation, 5.5% Interest - What to invest? Read & Know.
US Inflation: Mixed Bag for Markets
Recent releases of “hotter than hot” - US Consumer Price Index (CPI) and Producer Price Index (PPI) for February 2024 paint a somewhat conflicting picture of inflation in the US economy.
Is this shaping market sentiment with “cautious optimism”?
CPI offers relief, NOT re-assurance
The February CPI report showed a modest +0.4% MoM increase in prices, following a similar rise in January. (see above)
This continues a trend of slowing inflation seen in recent months.
YoY inflation also ticked up slightly to +3.2%, but remains below the highs of 2022 and early 2023.
This is a relief to consumers and markets, suggesting that the Fed's aggressive interest rate hikes may be starting to cool inflation.
Reasons for continued caution stemmed from:
Persistently high 3.8% YoY Core inflation (that excludes volatile food and energy prices).
Additionally, uptick in energy prices in just released PPI data, suggests that inflationary pressures could persist at the wholesale level, potentially feeding into consumer prices later.
PPI - Potential for Future Inflation?
On Thu, 14 Mar 2024, the Producer Price Index (PPI), showed a more concerning trend. (see above)
MoM wholesale prices rose +0.6% in February 2024, with final demand goods, particularly energy, experiencing a significant jump. (see above)
This is +0.3% higher than forecast and January’s PPI.
Clearly indicating that businesses are facing higher input costs and that eventually will be passed on to consumers.
YoY wholesale prices came in at +1.6%. This is +0.5% higher than forecast and +0.6% higher than revised January’s PPI. (see above)
The upward trend for both January & February report is worrisome.
US Retail sales.
Meanwhile retail sales increase +0.6%, coming in short of estimates for a rise of 0.8%.
Eyes were closely watching Thursday's data release for clues on the health of the US economy ahead of the central bank's two-day meeting next week.
US market - 11 Mar to 14 Mar
Market’s Cautious Optimism?
Hot inflation data are leading to heightened caution in the US markets. (see above)
On Tue, 12 Mar 2024, US market tried to ignore the marginal +0.1% increase to CPI estimates.
On Wed, 13 Mar 2024, US market put in a mixed downwards trending performance.
On Thu, 14 Mar 2024, it could no longer feign ignorance because renewed inflationary pressures from the PPI keeps investors on edge.
Certainly the Fed will be closely monitoring these reports on the lead up to FOMC meeting on Mar 19-20 where the committee collectively would have to decide on the future interest rate adjustments.
My viewpoints: (mine & mine only)
February inflation data signals the Fed’s fight against inflation is far from over.
Both CPI and PPI - indicates potential trouble down the road.
Market will likely remain volatile in the near future, as investors grapple with conflicting signals.
Along with a mild tumbling market, it may be the best opportunity to load up on your favourite blue-chip.
I still like stocks in sectors — Tech, Cybersecurity, Healthcare and Energy.
I am looking into Minerals too.
I think I am heading in the right direction. (see below)
According to $Bank of America(BAC)$ Equity strategist - Ohsung Kwon, in 2024 — Meta Platforms, Amazon, Microsoft and Google, are expected to invest $179 Billion in capital expenditures.
This is up +27% from last year's total. (see above)
Apart from above 4 Tech giants, rest of the S&P 500 is expected to spend $825 Billion capex, up just +1% from 2023.
Mr Kwon also mentioned:
A lot more power is required to build the new generation of AI data centers, compared to the current traditional data centers.
The capex investment will reach beyond just the chip sector.
Instead, AI spending will create a "multiplier effect" that could boost demand for (1) electrification, (2) utilities, and (3) commodities.
When it comes to investing in the US, do you agree that investors are spoilt for choice?
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Do you think US market will remain volatile in the short term?
Do you think you rather invest in Tech stocks than companies that will gain from Tech companies CAPEX expenditures?
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