To The Moon

Why the market not perssimistic any more? US January CPI increased 6.4% YoY, higher than consensus 6.2%, previous 6.5%; It rose 0.5% M/M in January, a tick higher than the 0.4% expected and a jump from the 0.1% increase in December (which was revised from -0.1%). Core CPI increased by 5.6% YoY, and the growth rate continued to fall, which was the lowest level since December 2021, but still higher than consensus 5.5%, previous 5.7%; It rose 0.4% MoM, which was the same as consensus. At MoM view, Food away from home, energy commodities, gasoline and gas services, clothing, medical care commodities, shelter and transportation services are beyond average. Food at home, fuel oil, electricity, new cars, used cars and trucks, and medical services are below average. Fuel, used cars and medical services even declined month on month. Used cars even decreased by 11.6% YoY. The biggest contributor to the increase was shelter, accounting for almost half of the monthly gain. Accounting for about half of the monthly increase. Housing inflation was 7.88%, higher than 7.51% in December and a record high; Rent inflation was 8.56%, up from 8.35% in December and a record high. However, housing prices have a great lag in CPI data, and its industry data show that housing rental prices have peaked and declined. Comparison of year-on-year growth rates of housing inflation (blue) and housing price index (black) Why is it a beat after months of below consensus? The most important reason could be the update of CPI weights. View Source From 2023, the CPI basket will reflect not the weight of 2019-2020, but the weight of 2021. In the past, CPI weights were updated every two years, but from this time on, they will be updated once a year. And the weight in 2021 is relative to that in 2019-2020,The important change is that some items that drag down CPI, such as used cars and medical services, have relatively lower weights, while those that pull up CPI have higher weights, like shelter. This causes analysts to underestimate CPI. Service inflation will be more stubborn and difficult to contain than commodity inflation, because it is less elastic According to the Federal Reserve Policy Observation Tool, it is basically certain to raise interest rates by 25 basis points in March, with a probability of 90.8%, compared with 45% a month ago. We believe, Exceeding expected inflation is not a real "suprising", because the data difference caused by weight change is actually only the due to methology. Although the market could reprices of "high interest rates last longer", the market current valuation is acceptable for both bulls and bears. However, the profit level at the enterprise level could be really declining, and more enterprises have started measures to reduce costs and increase operational efficiency, which also makes investors' expectations for the next few quarters drop. Once the expectation drops, it will be difficult to have "missed" when the actual performance is released. Market changes still depend on investors' psychological expectations. In addition, new technologies such as ChatGPT also gives the market considerable confidence to bet on growth companies with high risk appetite. Therefore, there is no reason for continued pessimism in the US stock market in the short term.