Why stocks could get a near-term pop after CPI arrives

lorozco3D

With inflation likely reaching its apex, a benign retail inflation number should spur a risk-on rally, according to Wells Fargo.

The June CPI arrives at 8:30 a.m. ET on Wednesday, with economists looking for a 1.1% rise for the month and a 0.6% rise in core CPI.

If the headline number is in line, slightly above or well below consensus there will be a near-term pop in risk assets, senior equity analyst Chris Harvey wrote in a note Tuesday.

"We believe analyst bias and an asymmetric payoff structure is building a consensus that will be difficult to exceed," Harvey said. "The 8.8% y/y consensus is the highest in recent memory, and follows calls for peak inflation last month by many analysts."

"After May's CPI miss, and last Friday's miss on payrolls, we now expect a near-term upward bias to forecasts."

The S&P 500 (SP500) (NYSEARCA:SPY) has given back some gains this week after kicking off July with a 1.9% gain. It's still up 1.8% for the month vs. an 8.4% plunge in June.

"Supporting our view that the market likely will embrace a 'peak-inflation' view is the trend in breakevens, commodities, and the consumer," Harvey added. "Breakevens (across maturities) have fallen significantly since June 10, with 2yr breakevens tightening over 100bps. Notably, 5yr and 10yr breakevens are back to levels observed a year ago."

"Commodity prices have also been trending down, with crude oil off $12 (10%) since June 10. Meanwhile, the UofMich Consumer Sentiment Index recently hit a two decade low."

J.P. Morgan's Marko Kolanovic also sees inflation moderating and is looking risk-on.

Comments

[User 48535522]

Core CPI is useless. Who lives without food or energy?

Likely the real CPI is 50-100% higher. Just like the money supply numbers are likely rigged.

[pulga]

this CPI did not help resolve that thesis, but it is true that there is a gap in stocks and there has been a drop in basic products, now China has delivered some very good figures for exports and bad figures for imports, stocks are decreasing, which can give a new rise to raw materials... but the gap will cause the cpi to drop next month,...but in no way the trend and the negative sentiment in the stock market is being modified... even this story is not over

[MAYHAWK]

The good news is that if it can hold for 2 more months I get a 9% increase in my SS. smh

[cuzin GJ]

More like a punch in the mouth !
Fed had heads in sand too long and now will play catch up with 0.75 bumps in July and September. Biden will find someone else to blame. No time to catch a falling knife. However, perfect time to prepare your shopping list for coming capitulation. Ball of Confusion- Tempations !

[Code Talker Market Analysis]

The pop is here alright. Like popping a balloon, and it falls to the floor in front of you.

Got any other bright ideas? We'd love to follow your brilliant analysis.

[sj74]

CPI 9.1, OMG!!

[Josfk999]

The bulls have been crying peak inflation since March. One day they will actually be right but that will only be known in retrospect. More important than when it actually peaks is the fact that high inflation is here to stay and the bulls are blind to that.

[Amos Tuck]

A terrible inflation print won't be good for markets.

Obviously!

After the last print, pundits forecast "peak inflation"...but this print is going to be worse.

Now we have:

1.) Sky-high inflation
2.) Excellent employment report

Guess what that means?

Aggressive RATE HIKING.

When bubbles burst, stocks fall 50%.

We're only down 20%.

Investors should use this opportunity to de-risk before the real bout of selling/chaos washes over markets.

[jackasd]

Any pop will be short lived with the earnings coming and subsequent poor guidance that will be given

[Fooly Finance]

June cpi likely higher while core cpi lower, then July both will come down.

[William_Wallace]

So it looks as though we'll see the FED easing off on the brakes because they got everything down enough....... look at oil, copper, housing coming down. Also look at CORN, and DBA both well off the highs. Doubt this June CPI will be higher than the May CPI, but if it is the July CPI will be much much lower. But the FED will be backing down in 2022 without crushing inflation, which is what they needed to do. Softish landing for November elections, but inflation still in the mid single digits, not good, not good at all. One day soon they'll have to put the pedal to the metal and raise to 10%+ or there will be worthless dollars and anarchy coming your way.

[vtcomics]

Adjusted headline, "Why these kinds of articles are cesspools of the industry".

[SPDY84]

"Risk on" as we head into a recession (if not already in one)... gotta love WS. They just want the counter trend to burn all the puts and shorts.

[Julie.Rudiani]

A pop would be delightful.

[Code Talker Market Analysis]

People already caught wind of the CPI print and sold off at the end of the day before.

And earnings are going to be a nightmare.

Going down, down, down.

[DarienL]

@Code Talker Market Analysis So many companies will be lowering guidance. Wait till the MAANMGS miss and guide lower

[Florida_Dreaming]

What they don't say is earnings season starts the very next day and it's setting up to be an absolute disaster. Expect many many lay off announcements. FED is getting exactly what they want to achieve. But they aren't done yet because they need housing and crypto to fully crash.

[Sambo Neube]

reporting from the ground in central Europe, food inflation is out of control and we are probably on the verge of the biggest financial crisis since great depression. brace for impact, it gonna be pretty

[daddiojrvs]

@Sambo Neube if your govt is like ours…cpi numbers will be purposely minimalized…

There’s not a single item that I can think of that’s not at least 10-20 percent higher year o wr year and much is closer to 25-30 percent and higher but you won’t see those real numbers posted in these reports…it’s really all make believe and just as well written on toilet paper

[Flibertyjibit]

@daddiojrvs I can think of a whole category that hasn’t changed in price! Lottery tickets. 😂

[Gary Jakacky]

@Flibertyjibit Vanna White still sells vowels for $50.

[PanicFirst]

Quality analysis there...

[Going Broke]

The surprise here would be a continued drop in inflation after this report, all options possible.

[Stefan Redlich]

Commodities are down big but energy prices are still very high even though oil is coming down meaningfully in July so far but that does not impact the June figure