In his Daily Market Notes report to investors, Louis Navellier wrote:
Higher Than Expected CPI
CPI comes in above estimates, and the market opens down but was flat in the first half hour.
Market volatility remains high as demonstrated by today’s reaction to higher inflation than expected shows. The S&P has swung 56 points in both directions in an hour. The inflation numbers were only slightly higher than expected; the headline inflation number for January was 0.5%, vs the 0.4% estimate, core CPI was 0,4% as expected.
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At issue is the trend: 0.5% headline CPI was the highest since June, core inflation at 0.4% is the highest since September, seasonality is an issue in that CPI is not seasonally adjusted, which was -0.3% for December was +0.8%, also the highest since June.
Further making comparisons problematic is that the CPI calculation itself has been adjusted this month, by shifting some weightings and trending, leaving it difficult to make a summary comparison before and after. Inside the reported numbers, energy was up 2% for January, home ownership +0.7% and food +0.5%, while used cars were down 1.9% and airline fares down 2.1%.
The bond market, however, has made its feeling felt. The 2-year initially fell in yield but after further consideration is up 6bps to 4.60%, the high for the year. The 10-year is up 4bps to 3.76%, also the high for the year. Further, the futures market now reflects a peak rate of 5.25% in August, actually ahead of the Fed model of 5.13% year end rate, and the January '24 market is now over 5% to 5.04%.
Beware Of High Valuations
The stock market has taken notice and has slid well into the red as "Higher for longer" is becoming more difficult to deny. Other economic data reported includes Real Earnings (earnings adjusted for inflation) which came in at 0.7% for January, the highest since September '21. Hopes for a Fed pivot are fading while at the same time the economy appears to be in good shape.
Valuation becomes an issue with the S&P now over 18X earnings estimates while you can pick up 5% yield in a 6 month Treasury bill. Be wary of stocks with high valuations who aren't already delivering solid real meaning growth.
With earnings estimates overall falling and the Fed likely to stay on the path of higher for longer, meaningful growth in valuations beyond the rally we've already had appears overly optimistic.
Coffee Beans
A dog who went missing from her new Texas home was found two days later after walking 10 miles to her former shelter and ringing the doorbell. The shelter took the dog in and let her rest before reuniting her with her new family. Source: UPI. See the full story here.
