Since the post-pandemic economic reopening caused inflation to rise, the monthly consumer price index numbers have been crucial data releases. Lower inflation could lead to lower Fed rates, while stubborn inflation could mean higher rates and financial pressure. The most recent report brought positive news for the Federal Reserve:
– Core prices (excluding food and energy) rose by 0.1% in June, lower than expected by most economists.
– All-item (headline) CPI declined by 0.1%, driven by lower gasoline and energy costs.
– On an annual basis, CPI rose by 3.3%, less than expected, with the lowest growth rate since April 2021.
Additionally, indicators adjusted for outliers, such as trimmed-mean inflation and median inflation, have shown promising declines. The market now anticipates the Fed to cut rates multiple times over the next year.
Interestingly, after the good inflation numbers, the market saw a sell-off. Lower inflation is typically bullish, especially for growth stocks. This shift in market dynamics has led to a resurgence in the equal-weight S&P 500.
In light of these developments, opportunities may arise in undervalued stocks like Home Depot, Canadian National Railway, and Deere & Company. These companies are well-positioned to benefit from the changing market and economic landscape.
While uncertainties remain, the market’s reaction to the inflation report signals a cautious approach by investors. As the market continues to evolve, there may be more opportunities for investors to explore in the coming months.