CPI December 2022 & Market Ideas
Quick overview, what do I see?
• CPI 6.5 Y/Y, -.1 M/M (finally a down month!)
• CORE 5.7 Y/Y, +.3 M/M (up higher than last mo +.2)
• SERVICES very sticky!
• Services are a function of the tight labor market
The deceleration pattern continues with CPI but services inflation are very sticky and showing no signs of cooling. All of the services were up higher M/M in December.
This deceleration, although welcoming, does not appear to provide strong evidence of inflation headed back to 2% just yet. Plus labor market is very tight which is contributing to the high services inflation. Nominal wage growth drives nominal spending which maintains nominal demand in a loop which further facilitates entrenchment until cannot anymore.
The FED terminal rate is just over 5% and with the overnight rate now at about 4.25%-4.50%, it seems the rate hikes continue for now.
Also initial and continuing jobless claims today further reinforce the very tight labor market with lower prints.
Powell had 3 goals:
1. Below trend growth – 🚫
2. Soften labor market – 🚫
3. Evidence of inflation headed to 2% – 🚫
We should keep an eye on the dollar $DXY as its continued weakness could give us more clues. If the dollar continues to weaken and commodities prices rise (dollar and commodities inversely related) and import prices increase with a weaker dollar, then CPI could reaccelerate and go higher.
Most likely, Fed funds rate will head over 5% and remain there for some time.
Regardless of this data, there are trade opportunities in the market. Besides the commodities we have been discussing such as GLD, SLV, COPPER, Platinum, lithium – SGML, and more, there are fundamentally sound stocks also having some action.
Remaining liquid has been my general theme so I am holding more CASH than usual and at about 50%. These are ideas and not recommendations. Risk management is tops especially during volatility.
I still believe stagflation is a possibility and we are not “out of the woods” so exercise caution. Avoid chasing, FOMO, and careful buying breakouts in bear. Yes, we are still in a bear until proven otherwise.
SMCI even though there was a short report I am still bullish. These short attacks are usually bogus and a disingenuous tactic for some to get shares at a lower price in my opinion. I watch the data from the company and prepare for their next earnings which should be inline or exceed estimations. We will watch and see. I don’t let these 3rd party reports “scare me” out of shares. This is my opinion. Use your own discretion as always.
Biotech and medical are sectors I’m watching and more bullish. Commodities. Think essential industries. Defensive. Reduced position sizing is key.
Biotech ETFs: XBI , IBB, LABU
Stocks: AMLX, BTAI, RVNC, ACLX, AXSM, MEDP, PODD, CPRX, ARDX
Energy ETF: OIH
Emerging Markets ETF: EEM
ACLS, AMKR, LSCC, FSLR, ON, CELH, and others
Copper: CPER, SCCO, COPX, FCX
Silver: SLV, AG, PAAS, PSLV
GOLD: GLD, GOLD, GDX, NEM, SGOL, AEM
Lithium: SGML, SQM, LAC
Some are miners and others more on the metal itself.
There are others but there are some great ideas. Not BUY recommendations.