July inflation cools further, keeping "soft landing" hopes alive. What it means for your portfolio.
Easing Price Pressures Keep Fed Rate Cut Bets Intact...For Now
The pivotal July CPI report landed squarely in the "Goldilocks" zone for volatility traders. Inflation continued moderating, with consumer prices rising 2.9% year-over-year - the lowest since early 2021.
The disinflation trend keeps the market's aggressive Fed rate cut bets firmly on the table. Traders are pricing in at least a 25 basis point cut in September, with many looking for a larger 50bp move. Policy easing would relieve some tightening pressure that has weighed heavily on risk assets.
Sponsor
5 Stocks That Could Double in 2024 [Full Story >>]
Goods Inflation Cools, But Housing Lingers as a Headache
The easing in goods price pressures is particularly encouraging. Categories like used vehicles posted deep double-digit annual declines, signaling pandemic supply chain issues are fading. This reduces the chance the Fed overtightened policy based on transitory supply shocks.
However, housing costs remain stubbornly elevated, with the shelter index up 5.1% year-over-year and accounting for over 70% of core inflation. Real-time rental data suggests some relief ahead, even if sticky CPI methodology is masking improvements.
Services Are The Wild Card With Fed Policy Implications
The biggest uncertainty is services inflation, which is highly wage-sensitive. July's data kept the potential "soft landing" path alive, with moderating services prices needed to seal the deal. A continued jobs market cooldown should help, but any resurgence here could force more Fed tightening.
CPI Tailwinds, For Now - But Brace for Shockwaves If Data Reverses
For now, wagers on imminent Fed easing appear justified based on the disinflating CPI trend. This could keep a lid on volatility in the near-term. But any resurgence in inflationary shocks could quickly upend rate cut bets.
One or two hot CPI prints would likely force traders to quickly re-price a far less aggressive Fed easing path. That pivot could unleash fresh volatility shockwaves across asset classes like stocks, bonds, currencies, and commodities.
Stay Volatility-Focused With the Inflation Disruptors on Watch
The July figures keep the narrative alive for a potential "soft landing" that avoids severe tightening and economic contraction. But risks remain elevated given stickier housing costs and the services inflation wild card.
With so much hinging on inflation's path, volatility traders should keep a laser-focus on the sectors and disruptors with the biggest potential to force market re-pricings. Areas like housing, autos, medical costs and wages remain this cycle's biggest potential CPI shockwave sources.
YOU NEED TO READ THIS NEXT
Nvidia is dominating AI, but where is it going next?
Nvidia ruled the first AI boom…Now, it’s pivoting to a new, $1 trillion Superproject. In fact, Nvidia’s CEO mentioned this critical move 56 times during a recent earnings call. Here’s the exciting part …Three companies are partnering with Nvidia on this massive pivot. And they could be the best way to benefit from Nvidia’s pivot right now. Click here to find out more details on them today.