CPI Update
What is it?
The Consumer Price Index (CPI) is a measure used to gauge inflation. Tracking CPI helps investors realize how prices have been impacted since the prior year.
“The data published by the US Bureau of Labor Statistics showed on Wednesday that inflation in the US, as measured by the Consumer Price Index (CPI), was 8.3% on a yearly basis in April. Although this print was lower than the March reading of 8.5%, it still surpassed the market expectation of 8.1%.”*
Why does it matter?
What this means is that inflation is still higher than expected even after coming down a little from the prior month. Because of that, the Fed may be more hawkish in their next meeting and aim to increase interest rates faster. If the expectation for rate hikes continues to change then we believe investors will continue to price that into the markets.
Stocks resume sell-off as market’s attempt at recovery falters
What is it?
Stocks in the U.S. were down last Thursday to extend a more bearish week in the markets.**
“The S&P 500 tumbled 1.8% to a fresh 2022 low, with the benchmark down more than 18% in the first 90 trading days of 2022 to mark its second worst start to a year, according to data from Compound Capital Advisors.”**
Why does it matter?
There have been talks about the possibility of the market bottoming. That would mean the stock market has reached the bottom of its move and would continue higher from here. With that said we are not in agreement with a vastly bullish outlook. We are anticipating a more bearish market outlook especially if the Fed is expected to continue raising rates within the next year.
The markets have not shot down aggressively. There seems to be a more institutional look to these moves as investors slowly reduce riskier positions and try to preserve capital. With that said, we believe that the markets could head lower if the Fed’s stance remains unchanged among other things. This is represented in many of our models. We are at a much lower net long position in terms of stock and ETF exposure to risk as we were toward the end of 2021. As these moves in the markets continue to develop we will keep you posted on whether we begin to add more long or short positions in the stock market.
Other articles we found interesting this week:
Crypto meltdown deepens as stablecoin Tether drops below dollar peg
Russia threatens to retaliate as Finland seeks NATO membership ‘without delay’
Global shares slide, dollar hits 20-year high on inflation fears
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Our last portfolio reallocation: 4/11/2022.
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Our process attempts to identify trends and momentum in the financial markets. With that information, we align our clients’ portfolio accordingly in the hope to help our clients accomplish their life goals while attempting to lower the risk of a large drop in their portfolio.
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Sources:
*Eren Sengezer. “Forex Today: Dollar rally picks up steam on risk-aversion ahead of PPI data”. 5/12/22. FX Street. https://www.fxstreet.com/news/forex-today-dollar-rally-picks-up-steam-on-risk-aversion-ahead-of-ppi-data-202205120650
**Alexandria Semenova. “Stock market news live updates: Stocks resume sell-off as market’s attempt at recovery falters”. 5/12/22. Yahoo Finance. https://finance.yahoo.com/news/stock-market-news-live-updates-may-12-2022-223519270.html
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