Wednesday US Market : Spike or Dip ? Plan B Ready!

Producer Inflation data.

On Tue, 14 May 2024 - US Producer inflation report for April 2024 was published.

It was a disappointment to say the least.

The price of things that manufacturers make (producer prices) went up more than expected in April 2024.

This is because things like financial services and hotels cost more.

In short, it means inflation is still high.

Even though food prices went down a little, overall price of things companies sell went up.

It is likely that the price of things one buys in stores/shops (consumer prices) will also go up soon.

Will the Fed that manages US economy be “forced” to raise interest rates to fight inflation ?

Producer Price Index (PPI) - April 2024.

Report from Labour Department showed that:

  • Monthly Producer prices rose +0.5% in April, for both Core PPI and PPI.

  • This marked a +0.6% increase from March 2024 data of -0.1%, for both Core PPI and PPI.

  • Both data set exceeded Wall Street expectations.

  • Services is (by far) the main culprit that attributed to the increase; not factors like food or clothes.

  • Incidentally, this is the biggest jump in producer prices since July 2023.

  • On a brighter note, economists think that PPI might start to fall soon.

  • This is because based on latest Non Farm Payroll for April 2024 (released on 03 May 2024), job market has slowed significantly.

Despite a disappointing data set, by the time US market closed:

  • DJIA: +0.32% (+26.60 to 39,558.11).

  • S&P 500: +0.48% (+25.26 to 5,246.68). It is about 0.5% below its all-time closing high on 28 Mar 2024.

  • Nasdaq: +0.75% (+122.94 to 16,511.18).

With the PPI out of the way, analysts are looking ahead squarely at the Consumer Price index (CPI) for April 2024.

Consumer Price Index.

Wednesday release of the April CPI report has the potential to shake up the stock market.

A cool inflation report would bode well for interest rate cuts from the Fed and vice versa if it's hotter than expected.

$JPMorgan Chase(JPM)$ has laid out 6 scenarios for April CPI and how the stock market could react to each.  (see below)

It is either a case of all out Spike or Dip.

Take a look at the information that I have read & summarized into table format for quick & easy understanding.

(1) Scenario 1.

  • The first tail-risk scenario that would likely show smaller than expected disinflation in shelter prices and perhaps a reversal of the drags created by vehicle prices and public transportation price.

  • Look for a sell-off across all risk assets and investors may find sanctuary in commodity plays with Defensives outperforming on the move lower.

(2) Scenario 2.

  • Given market pricing and Powell's comments, this outcome maybe looked through over the course of several days.

  • Overall, likely that stocks would fall as bond yields move higher.

  • Reducing the probability of 2024 rate cuts.

(3) Scenario 3.

  • Owner’s Equivalent Rent (OER) and Rent inflation remain elevated.

  • It is difficult to see a material softening in inflation, both headline and core, until stronger disinflation can be felt.

  • Stating the obvious, the closer the print is to the lower bound the stronger the positive reaction especially if a sub -0.30% print that rounds up to 0.3% is seen.

(4) Scenario 4.

  • The first potential positive tail-risk, most likely achieved via a decline in shelter inflation.

  • This positive tail could trigger a material rotation within Equities.

  • It could look very similar to Nov/Dec 2023, that was an 'Everything Rally' with Small & Medium Caps (SMid-caps) outperforming,"

(5) Scenario 5.

  • would need to see the price of everyday items (excluding food and energy) go down along with a slower rise in housing costs.

  • Based on China's PPI, a decline in the price of everyday items seems more likely, but it still would not be enough to see this happen.

  • Expect bonds’ interest rates to dip a lot as Bond market expects the Fed to lower interest rates in July.

  • Stocks and corporate bonds would do well because of the just the right economic conditions (not too hot, not too cold)

(6) Scenario 6.

  • This is really a “too good to be true” scenario.

  • Investors might get too excited about lower inflation and bet on the Fed cutting rates even sooner, in June.

  • This excitement might fade when more economic data is out (over the weeks), making the market bumpy/jittery.

My Viewpoints: (mine & mine only)

  • Given Tuesday Producer Price Index data, I think US’s April CPI should fall somewhere between Scenario 2 and Scenario 3.

  • Ideally, 3 would be a better outcome option (for me).

  • Market should rally and it will be a load off everyone’s mind until end May when Personal Consumption Expenditure (PCE) data is out.

  • With all the possible scenarios mapped out, do you have in mind what your Plan-B exit strategy looks like in the event of market gone-bad reaction?

  • I have !

  • Stocks that I will still watch over and ponder when would be a good time to scoop up some - (1) $Utilities Select Sector SPDR Fund(XLU)$, (2) $Vistra Energy Corp.(VST)$, (3) $SoundHound AI Inc(SOUN)$.

Why these ? Well, for starters I have done a bit of reading up and shared about them in my recent posts.

Must ReadClick on below titles to access. Give a like & help to repost ok. Thanks.

  • Do you think CPI data will fall inline with Wall Street expectations?

  • Do you think you will focus on Utilities stocks or ETFs too, given that its a spillover effect from AI ?

If you find this post interesting, give it wings! ️ Repost and share the insights ?

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@TigerPM

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# 💰 Stocks to watch today?(21 May)

Disclaimer: Investing carries risk. This is not financial advice. The above content should not be regarded as an offer, recommendation, or solicitation on acquiring or disposing of any financial products, any associated discussions, comments, or posts by author or other users should not be considered as such either. It is solely for general information purpose only, which does not consider your own investment objectives, financial situations or needs. TTM assumes no responsibility or warranty for the accuracy and completeness of the information, investors should do their own research and may seek professional advice before investing.

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Comment17

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  • phongy 45
    ·05-16
    TOP
    why don't concentrate on productivity influence the market via unfair practices....
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    • JC888
      Hi, tks for reading my post... Sorry dun understand the comments made... Re-explain?
      05-16
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  • ZebulonToynbee
    ·05-16
    TOP

    Spy is a strong boy hahahahhaah

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    • JC888
      Hi, tks for reading my post... Hahaha
      05-16
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  • CornerSteve
    ·05-16
    TOP

    Watch jobless claim tomorrow to see reality

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    • JC888
      Hi, tks for reading my post. True.
      05-16
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  • coolguy001
    ·05-16

    That was fun! Profit locked it!

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    • JC888
      Hi, tks for reading my post.. Profit is not profit until it's in one's pocket....
      05-16
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  • MIe
    ·05-16
    Deflation trend.. data is delayed
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    • JC888
      Hi, tks for reading my post... U think so? PPI & CPI are cruising in slightly different altitude. It's a mixed signal no?
      05-16
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  • ZoePaul
    ·05-16

    Another new high!

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    • JC888
      Hi, tks for reading my post... While I am happy, I am apprehensive too for a slump might be round the corner no?....
      05-16
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  • JC888
    ·05-15
    Hi, tks for reading my post. I make time to write and share my post.
    Pls help to "Re-post". Tks! Rating is important (to me).
    Would you consider "Follow me" and get first hand read of my Daily new posts? Thanks!). Tks!
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  • Great plan 

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    • JC888
      Hi, tks for reading my post...
      05-16
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  • Tom Chow
    ·05-16
    good
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    • JC888
      Hi, tks for reading my post...
      05-16
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