Stocks traded lower after an earlier session rise as the specter of high inflation continued to weigh heavy on investors. Earnings begin to trickle in leaving investors with yet another worry to worry about.
That empty feeling. We know it’s here and I have been writing an awful lot on the topic, but it simply must not be overlooked. This inflation that we are experiencing is unlike any other we have witnessed in the past 40 years. I know that last statement sounds like a headline or some sort of click bate to get you to sign up to some sort of scheme to save you money. I can show you the chart which looks like a big letter “U” starting in 1982 and ending…well, yesterday, but why bother, because you already know. Yesterday, the Bureau of Labor Statistics released its Consumer Price Index series, which showed a year over year increase of +8.5%. That means, in general, we are paying 8 ½ % more for things this year than last. There is no official “rate of inflation” number, but most look to this metric as the one to watch. With that said, the release was not altogether surprising with economists expecting +8.4%, but there is always hope that we could get a positive surprise. With the war in Ukraine however, positive inflation surprises are unlikely with the soaring energy and grain prices which took hold in earnest during March, as the Russian invasion played out. With that, you may be wondering where all this inflation is really coming from…beyond the obvious. Yesterday, Fed Governor and Vice Chair nominee Lael Brainard expressed cautious optimism that the Core CPI, which excludes energy and food, moderated last month, coming in below estimates. Though that core number does not include those aggregates, we…you and I, must still pay for energy and food, so a moderation there would certainly be appreciated. According to Brainard’s calculus, energy price increases associated with Russia’s invasion contributed some 70% to the reported inflation, while price spikes in food contributed an additional 10%.
Digging deeper into yesterday’s release we see some interesting patterns, one good, and others, well…mostly bad. Let’s have a look. Are you a baker? Flour and Prepared Flour Mixes are +14.2% more costly than a year ago. While wheat and grain prices have been on the rise (resulting from crop yields and bad weather), the war in Ukraine made bad even worse because a significant amount of the world’s grain supply comes from that region. While Beef Product prices moderated slightly, you will still pay +16% more than last year for it. Chicken is +13.2% higher than a year ago which may be the result of bird flu curtailing output in recent months. When it rains well…you know the saying. Getting down to the second usual suspect, Energy, as a whole, is +32.0% more costly than a year ago, but that is not the whole story. Gasoline is +48% more costly and Fuel Oil, used for heating, is +70.1% higher. Thankfully, we are headed into the warmer part of the year. Just take a few seconds and look back at those numbers. We all buy gasoline and food, so, the reality is that we, all of us, have that much less in our pockets at the end of an ordinary month. Major Appliances continue to be more costly (+12.4%) mainly due to continued supply constraints. Ok, now, on to usual suspect number 3, Transportation. New Cars and Trucks will cost you +12.6% more this year than last…if you can find them in this thin inventory market. But there is a sign of hope for the optimistic and observant economists amongst us. Used Cars and Trucks, though they will cost you +35.3% more than last year, actually moderated since February which turned in a +41.2% year over year growth. Economists are speculating that the skyrocketing prices have finally turned consumers away. Aha, could it be that the natural forces of economics are finally doing their jobs? Possibly, but they better speed it up, because +8.5% inflation is bad, no matter how you slice it.
WHAT’S SHAKIN’
Earnings season officially begins today with the big financials. Speaking of which…
JPMorgan Chase (JPM) shares are lower by -1.02% in the pre-market after it announced that it missed EPS estimates by -3.34% while beating Revenue estimates by +0.48%. The results may not be shocking as investment banking revenues which contributed significantly to last year’s growth are expected to be lower, industry wide. Dividend yield: 3.04%. Potential average analyst target upside: +23.2%.
Delta Airlines (DAL) shares are trading higher by +6.6% in the pre-market after it announced that it beat EPS and Revenue estimates by +2.09% and +0.56% respectively. Though the company acknowledges that higher fuel costs will impact profitability, it expects the increase in demand for summer travel will offset the inflationary pressure. Potential average analyst target upside: +19.3%.
Fastenal (FAST) shares are higher by +2.62% in the pre-market after it announced that it beat EPS and Revenue targets by +5.34% and +1.36% respectively. The construction and industrial supply company stated that increased demand for its products offset the increases in its costs. Dividend yield: 2.15%. Potential average analyst target upside: +0.7%.
YESTERDAY’S MARKETS
Stocks fell yesterday, erasing earlier gains, after high inflation figures dampened the buying energy of the nascent bulls. The S&P500 slipped by -0.34%, the Dow Jones Industrial Average fell by -0.26%, the Nasdaq Composite Index gave up -0.30%, the Russell 2000 Index gained +0.33%, and the S&P500 ESG Index declined by -0.35%. Bonds gained ground and 10-year Treasury Note yields lost -6 basis points to 2.72%. Cryptos lost -1.04% and Bitcoin slid by -0.78%.
NXT UP