Bulls Licking Their Lips After Today’s CPI Number

July 12, 2023

From the desk of Vance Howard:

23-7-12-SPY

Today’s CPI number was very encouraging for the bulls, as inflation is clearly dropping. I was on CNBC Asia last night (a short clip is included), and they pressed me on why I think we are in a new bull market.

The HCM-BuyLine^® is positive, inflation is dropping, a record amount of cash is on the sidelines, low unemployment, a strong economy, and the list goes on from there. Could this be setting up to be a Goldilocks market?

Today’s June CPI was very good, showing a downside break in core inflation (core CPI) and hints of a sustainable decline in inflationary pressures for the next few months. Core CPI came in at +0.16%, a solid downside surprise compared to +0.30% consensus. No “sticky inflation”: as inflation has broken to the downside and the Fed doesn’t have to break the economy!

As of now, 45% of CPI is in outright deflation, vs 30% 50-yr avg and inflation is set to fall like a rock. Why would the Fed keep Fed funds at 5.5% if core inflation is tracking towards 3.0% or lower by December 2024? This is why investors might need to think about Fed cuts in 2024.

The HCM-BuyLine^® is positive and all pullbacks should be considered buyable.

Vance Howard

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