CPI AT 8:30

May’s CPI is posted at 8:30.  Has inflation peaked? The CPI for April rose 8.3%, down from 8.5% the prior month, but still close to the biggest increase in four decades. Annual inflation likely climbed at an 8.2% pace in May according to Bloomberg. This is more than four times the levels seen before the pandemic.

Some will argue the drivers of inflation are broadening. At the headline level, energy prices are up month on month quite dramatically. There is considerable pressure on shelter and food thus making it difficult to say inflation has peaked.

On the other hand, consensus (aka long dated Treasuries) has accepted the Fed’s mantra that prices while still elevated has indeed peaked and pressures will subside dramatically as the year progresses.

It is an easy argument to make that if the data is vastly different from expectations volatility may greatly rise given that there is little conviction in either view.

Bloomberg wrote yesterday the investors should prepare themselves for a lost decade like the era from 1999-2009.In some regards the comments are similar to those made by Vanguard founder and chairman Jack Bogle days before his death. The rationale is rather simplistic…rising interest rates, massive participation and ownership in a handful of names and stretched valuations.

Yesterday the WSJ made similar comments, stating the stellar decade of technology dominance may be over utilizing 2000-2010 as a guidepost. The Journal stated even with the 27% drubbing in the NASDAQ that has left many marquee and must own technology names down over 50%, technology still comprises close to 27% of the S & P 500 capitalization, nominally lower than the approximate 28% record of five months ago.

If companies such as AMZN and NFLX are classified as tech, technology still comprises 43% of the S & P 500 versus 45% in November.

The previous apex of any sector of the S & P 500 capitalization was technology at 21% in 2000.

Commenting about yesterday’s market activity, both the NASDAQ and Dow closed around their lows, declining 2.75% and 1.94%, respectively. The catalyst was the ECB indicating more restrictive monetary policy to combat inflation. US Treasuries increased nominally in yield.

Last night the foreign markets were down. London was down 1,22%, Paris down 1.80% and Frankfurt down 1.57%. China was up 1.42%, Japan down 1.49% and Hang Seng down 0.29%.

Futures are flat going into the 8:30 data. The 10-year is up 1/32 to yield 3.04%.


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