There was nothing fat about Tuesday’s market action as screens were painted red to usher in today’s St. Valentine’s Day holiday. People on the street are wondering whether inflation will ever go away… people on Wall Street, that is.
…loves me not… Yesterday was indeed a heartbreaker for those last holdouts for their love interest Fed. Markets have been at odds with what when, if, and how much love the Fed will give the bulls, and yesterday’s higher-than-expected monthly gain in the Consumer Confidence Index / CPI left bulls watching their love interest getting on a train and leaving town amidst a crowded train platform. The scene ends with the camera zooming in on a bouquet of flowers slipping out of the bull’s hand and landing in a pile of petals on the cold… hard… dirty… concrete. Left… jilted… and downtrodden.
Really, people, get a grip. We know that inflation is not going to just disappear. I mean if you owned a business, why would you stop raising prices? Or even more extreme, lower prices. You would only do so if your customers simply stopped buying from you, and that has clearly not happened yet. It is a process, and the last mile is the most difficult… and I would argue that we are not quite at the last mile yet. That is precisely why the Fed is hedging and not intent on turning on the spigot so fast.
To be fair, the holdouts for a March rate cut have been thinning in numbers, and the zealots for a May rate cut were ready for a bathroom break after waiting so patiently for so long. Yesterday’s CPI release certainly deprived the Team May of some of its members as the probability of a cut fell from just under 60% to below 40%. The adjustment certainly reflects a less probable occurrence, but 40% isn’t too bad, and there is still plenty of time before May 20th for the Fed to be convinced.
For those who decided to sell yesterday, not because they care about the Fed, but because they believe that inflation is truly bad for the economy, I have some news for you: yesterday’s number was not so bad. I was a bit surprised that the financial news networks spent the entire day coming up with doom headlines like “biggest jump in inflation in months.” Um, it was only 1/10 of a percent higher than economists were expecting. Even though we often talk about inflation in relation to “things” like milk, eggs, televisions, and automobiles, the reality here is that our inflation problem is all about services at this point. Just have a quick look at the following bar chart of annual CPI. You can clearly see that the true culprit is the… I’ll call it, mustard-colored bars. We need those to shrink down to the size of the ones on the left-hand side of the chart. In fact, if you look closely at the chart, you will see that the mustard bars have not shrunken much since inflation as a whole peaked in mid-2022, and that most of the gains came from declines in… er, everything else. So, what’s still hot? Shelter (rent and insurance), Water and Sewage, Cable and Satellite TV, and I can’t make this up, Funeral Expenses. But really, at the end of the day, Shelter is the biggest contributor to sticky inflation. I am running out of ink, so I won’t get into depth of why, but I will point you to yesterday’s note which hints at why landlords are in a pickle with higher interest rates. If you apply deduction, you will realize that higher borrowing costs for property owners only exacerbate the high-rent problem, and the only way out is to allow the system to collapse. There, I said it. Now take a look at the chart and we can wrap up with my positive message. Go on, it’s insightful.
You know that our romance movie doesn’t end as the train steams out of the station, no way. The crowds disperse as the jilted bull raises its eyes only to see that its love interest did not actually get on the train. More tears stream down cheeks as hopes for a long romantic embrace swell. Then the scene really ends as the camera zooms out to a wide shot only to reveal the large distance between the two would-be lovers. At least they are on the same platform. The closing credits roll.
WHO’S GETTING LOVE AND WHO IS NOT THIS MORNING
Generac Holdings Inc (GNRC) shares are lower by -6.29% after the company announced that it missed EPS and Revenue estimates 💔. The company’s home generator sales missed the market significantly, but the company expects that to turn around in the coming quarters. Potential average analyst target upside: +11.5%.
Uber Technologies Inc (UBER) shares are higher by +5.64% in the premarket after it announced a $7 billion share buyback plan, the first one for Uber 💗. Just last week, the company announced that it had its first full year of profitability. In the past month 38 analysts have increased their price targets while none have lowered them. Potential average analyst target upside: +14.6%.
YESTERDAY’S MARKETS
NEXT UP