Good morning contrarians!
Stocks are looking to rally a day after the S&P 500 and Nasdaq posted modest gains.
As of 0630, tech stocks are leading things higher with the Nasdaq up 1.2% in the pre-market. S&P and Dow Industrials are up a little less. Individual stocks making moves include Nucor (NUE), Wynn Resorts (WYNN), and Las Vegas Sands (LVS), all up 4%. Paycom Soft (PAYC) is down almost 5%
Commodities are looking to bounce with WTI crude up 3% to trade around $103/barrel. Copper is up 2%. Platinum is up over 2% and silver 1.5%.
Bonds are seeing some bids as well, with the yield on the 10-year moving back down below 3% to trade around 2.94%. the 2-year is down 3 basis points to 2.6%.
Cryptos are even seeing some signs of life with bitcoin up 2% to trade around $32,000.
Consumer Price Index
The Consumer Price Index reading from the U.S. Bureau of Labor Statistics, out at 0830, is the main economic data release for today. This number may be able to tell us whether inflation has, in fact, peaked.
Economists surveyed expect the CPI to have increased by 8.1% year-over-year, which is below the 8.5% number seen last month. If you strip out food and energy, the ‘core’ CPI is expected to have increased by an even 6%, down from the 6.5% last month.
This would mean that inflation, at least by this metric, peaked last month (assuming of course the Fed’s interest-hiking campaign does its work and inflation continues to decrease from this point forward. Not sure what the usual lag is for these things, i.e. when interest rates begin to take effect on prices).
It’s worth pointing out — as I normally do when previewing the CPI — that for all their flaws, economists are usually pretty good with this particular figure. It’s the rare month that the core CPI misses the survey number by more than 0.1 or 0.2 percentage points. Since the start of 2020, there have been just five times (out of 27 reports) where the core CPI missed by 0.4 ppt or more: this February (when the survey number was 5.9% and the print came in at 6.4%), May, June and July 2021, and July 2020. Pre-Covid it basically never happened. Last month, estimates missed by 0.1%.
So if you were expecting a major surprise from this print, well, don’t. The assumption is that markets know this and will react strongly to even a narrow deviation from economist estimates.
Earnings
Yeti Holdings (YETI) just reported a beat of top- and bottom-line estimates and look like they maintained guidance for the rest of the fiscal year. Wendy’s (WEN) and Kristy Kreme (DNUT) are also due to report before the open at 0930.
After the close at 1600 we’ll hear from Disney (DIS), Bumble (BMBL), Sonos (SONO), Beyond Meat (BYND), and Rivian Automotive (RIVN).
The Bottom Line©
Futures appear buoyant at the time of this writing, but the CPI report does likely hold the key for what happens today. The core reading YoY is the one to watch, so the survey number of 6%. If it comes in hot, then that will likely bring fear of more interest rate hikes. If it falls short we may see a continuation of this relief rally that seems to want to develop.
Relief rallies have been very short-lived lately (like the last six months). This is typical of bear markets. Things don’t just move up and down in a straight line. This is maybe one area where technicals can come in handy, to see how prices are performing along the various moving averages.
Anyway the S&P isn’t technically in a bear market yet. If today’s CPI report provides indications that inflation has peaked, then who knows? It may not even get there. But again: when you have selling as sustained as we’ve seen these last couple of days (yesterday notwithstanding), then eventually none of these macro figures mean anything. At some point you start to see a very real wealth destruction effect, which leads to consumers and businesses cutting back on spending, which eventually leads to recession. That, maybe more than the inflation figure, is the bigger worry here.
Peak Inflation? CPI Print May Shed Light: Daily Contrarian, May 11