Stocks fell yesterday as tension built ahead of today’s inflation report. Apple served up a big nothing burger in its release yesterday leaving traders with no choice but to “sell the news” as they have so many times in the past.
So you wanna be hardcore? Have you ever wondered why everyone is talking about “core” inflation? The Fed loves “core” inflation numbers. Today, being an inflation number release date, I thought I would say a few words on the matter. First of all, what is it? Well, simply put it is inflation without factoring food and energy prices. Before fancy computer models, powerful laptops, and Python programmers, it was up to economists with pad, paper, and sliderule to crunch all the numbers and come up with the economic figures that would inform policymakers. If you don’t know what a sliderule is, ask you parents . Anyway, it was a cumbersome process to calculate and publish economic data in the olden days.
Another thing about the olden days was that supply chains were not as efficient as they are today. Pumping oil in the Middle East, transporting it across the Atlantic, distilling it, storing, piping, and trucking the distillates to your local gas station or factory was not what it is today. Likewise, sowing a corn seed, growing corn, harvesting corn, processing it, storing, transporting, packing, transporting again, and delivering to your local grocery store was not quite as efficient as it is today. That said, those important commodities, food and energy, were subject to wild price swings. Not to mention geopolitics’ effect on energy, and Mother Nature on food. So, some smart economist, way back when, asserted that in order to get an accurate idea of inflation, we should avoid counting “food and energy,” due to their propensity for price volatility. And guess what? The practice stuck.
So, here we are, on modern times, when your kids and grandkids can crunch numbers on their computers faster than a room full of nerdy, 1950s economists using pencils and slate blackboards. Energy, despite its being more broadly produced, is still subject to geopolitics, is still somewhat volatile, but by no means as volatile as it was even as recently as the 1980s. Food production and logistics have evolved significantly over time as well, with farmers employing NASA-like technology to ensure better crop yields. Of course, all of these arguments have held true until late 2021 when inflation, thought to be a thing of the past, reared its ugly head, when everything… EVERYTHING, including food and energy, went up in price by double-digits in most cases. That threw a hot spotlight on inflation once again, and now every politician, trader, central banker, investor, and average person is focused on inflation figures. Rightly so, as it affects all of us in one way or another, whether in our home budgets or our portfolios. Not to mention that many heads of state have quite literally lost their heads over food inflation in history. So, yeah, it's important. But which number is important? “Core” inflation or that other inflation number, often referred to as “headline” inflation?
Well, we know that the Fed likes to watch “core” inflation, the one that excludes food and energy. When the Fed publishes its forecasts, it uses “core” inflation… along with its predictions on economic growth and… INTEREST RATES. Now, I am sure that Fed economists look at everything, but it uses “core” inflation as its benchmark. Therefore, if you are wondering what the Fed may do next, you should focus on core inflation. However, if you are hoping to know what is really going on and how changes will impact your daily life, I will have to defer to my mother-in-law, the oracle of all prices of ALL things. If you ask her about inflation, she will immediately run down a list of the increasing costs of food items such as bread, eggs, milk, meat, etc. She will then tell you that gasoline prices have risen again recently and how they are already too high, and if you get her really riled up, she will tell you that her utility bills have skyrocketed. The Fed may not care about it, but you still have to buy those things, so maybe you should watch them too .
One final thing. Today’s Consumer Price Index / CPI release is expected to show a monthly increase of +0.6%, which is higher than the +0.2% reported last month. Annually, the CPI is expected to have picked up to +3.6% from +3.2%. HOWEVER, excluding food and energy (Core CPI) is expected to have slowed to +4.3% from +4.7%. You will have to decide which one is important for you. The Fed may be content with the release. My mother-in-law will not be happy with the release. The big question is… “which one will the stock market care about?”
WHAT’S FLUCTUATING IN THE PREMARKET
Ford Motor Co (F) shares are higher by +1.53% after UBS double upgraded the stock to BUY from SELL. Pro-tip: a double upgrade is rare. The UBS analyst cited the company’s EPS resiliency. The company will announce Q3 earnings late next month. Dividend yield: 4.81%. Potential average analyst upside: +23.4%.
Moderna Inc (MRNA) shares are higher by +3.86% in the premarket after it announced that its messenger-RNA based flu vaccine showed a stronger immune response than the traditional flu vaccine in trials and that the company is going to seek accelerated approval from the FDA for the jab. The stock is significantly more volatile than the average volatility of its comps and has lost -41.4% year to date. Potential average analyst upside: +60.6%.
YESTERDAY’S MARKETS
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