The AI boom for some stocks has passed while it is just starting for others

Stocks rallied on Friday after a key inflation figure showed that inflation is, indeed, moderating. The PCE Core Deflator, the Fed’s BFF inflation number, came in softer than experts were expecting.

What’s NOT in your wallet. Where were you last summer? I should say “where were you last June,” because, thankfully, not all my readers reside in the northern hemisphere, so let’s go with June. Ok, before you start thinking of that vacation or 5k race you ran in, get your mind back to business, and by “business” I mean with your finances. And by “finances” I mean your household budget. I am not going to lie. Despite my level best efforts, I have not been able to tame my rapidly rising monthly bills. I am not kidding, we really have tried, but the fact is that inflation has been unavoidable for virtually all of us in one form or another. Think about it. You too?

Well, there is some good news, and it has nothing to do with Artificial Intelligence, Taylor Swift, Beyonce, or [fill in your favorite sports team ⚾ or F1 driver  here]. No, it is about that nasty inflation. There is strong evidence that it is slowing down! In fact, once-dove-now-hawk, Minneapolis Fed President Neel Kashkari said that the inflation outlook for the US is “quite positive” in a weekend interview. He was obviously referring to last Friday’s PCE Core Deflator release which came in at a better than expected +4.1% YoY. It not only surprised on the downside, but it marked a solid decrease from the prior month’s release. Here are the highlights. Durable Goods, things that would hurt your toe if you dropped one of them on it (you don’t buy these often) are cheaper than they were a year ago, albeit marginally, but cheaper, nonetheless. In that category, Major Household Appliances, continued their decrease, pulling back by -12.4%. Remember this category was dogged by supply chain problems. Used Autos, once also a major headache, have declined by -4.2%, also continuing its string of pullbacks. Non-Durable Goods, things you tend to consume, are also cheaper than a year, also by a slim margin. You probably won’t be surprised to learn that Energy is cheaper by a significant -28.5% while Food is more expensive by +4.6%, though Eggs moderated by -7.9% (good news for your wallet, but bad news for your cholesterol ).

Now on to the Services aggregate. Housing remains a problem. You would know this if you recently got a renewal letter from your landlord, or you are on the search for a new apartment. Rental Of Tenant-occupied Nonfarm Housing moderated slightly since May, but it is still +8.7% higher than it was last June. Oh, and your Water Supply and Sanitation is still higher, by +5%. Natural Gas is significantly cheaper, but Electricity is higher by +5.4%. Can you feel your pocketbook gasping for air? Health Services are +2.2% higher though slightly less than the prior month. Do you remember that great trip you took last June? Well, if you planned the same one this year, the Hotel would probably cost +3.3% more, while your airline ticket would be cheaper by -5.5%. However, that fabulous restaurant you ate at would probably get you for +7.1% more this year.

All in all, while things cost more in some case, they cost less in others, and overall, even the higher growth groups are climbing at a slower pace than they were late last year and earlier this year. Hopefully that trend will continue, and you may find yourself talking about something else other than your high grocery bill with your spouse. Maybe the beautiful colors of nature in the fall… oh, I mean in November .

EARLY MOVERS BEFORE THE BELL

Salesforce Inc (CRM) shares are lower by -1.48% in the premarket after Morgan Stanley cut its rating on the stock to EQUAL WEIGHT / ATTRACTIVE stating that while the stock is still a solid long-term hold, any near-term catalysts have already been factored into the stock’s price. Though Morgan Stanley cut its price target, its new target is still higher than the stock’s current price by some +23%. Potential average analyst target upside: +7.5%.

Adobe Inc (ADBE) shares are higher by +2.69% in the premarket after Morgan Stanley upgraded the stock to OVERWEIGHT from EQUAL WEIGHT. The analyst cited GenAI as the catalyst for greater future growth. Potential average analyst target upside: +7.5%.

FRIDAY’S MARKETS

Stocks gained on Friday on an inflation report that came in close or lower than estimates. The S&P500 climbed by +0.99%, the Dow Jones Industrial Average rose by -0.50%, the Nasdaq Composite Index jumped by +1.90%, and the Russell 2000 Index advanced by +1.36%. Bonds traded higher and 10-year Treasury Note yields gave up -4 basis points to 3.95%. Cryptos added +0.70% and Bitcoin traded higher by +0.68%.

NEXT UP

• MNI Chicago PMI (July) may have climbed to 43.4 from 41.5.
• From the Fed. Chicago Fed President Austan Goolsbee will speak AND the Fed will release its Senior Loan Officer Opinion Survey at 2:00 PM Wall Street Time.
• After the closing bell earnings: Vornado Realty Trust, Diamondback Energy, ZoomInfo, Monolithic Power Systems, Transocean, Avis Budget Group, Arista Networks, Lattice Semiconductor, Tenet Healthcare, and Western Digital.
• Later this week: a lot of earnings in addition to PMIs, JOLTS Job Openings, Factory Orders, Durable Goods Orders, and the monthly employment numbers. Download the attached earnings and economic calendars for times and expectations.