PPI AT 8:30

Consumer prices rose more than forecast in April.  The core CPI which excludes food and energy increased 0.6% from a month earlier and 6.2% from April 2021.  The broader CPI rose 0.3% from the prior month and 8.3% on an annual basis. Even though inflation was nominally lower than March’s levels, the readings are still among the highest readings in decades.

As noted, while the report shows that inflation has likely peaked, the data underscores the breadth of price increase and when combined with firm wage growth, suggest inflation will remain elevated for quite some time.

The major negative attributes of the report include food costs which rose by the largest amount since 1981 rising by 9.4% from a year earlier.  Shelter costs—which are the largest component and make up about a third of the overall index—rose 0.5% for a third straight month.  Rent of primary residence climbed 0.6%, while OER increased the most since 2006.    Costs for home utilities such as electricity rose 13.7% in April from a year ago, the most since 2008.

On the positive, gasoline prices fell 6.1% in April from the prior month.

Markets were volatile on the data.  The NASDAQ declined about 3.2% to the lowest levels since November 2020 while value shares like commodity, financial and industrial shares advanced which limited the decline in the Dow to only 1%.

As widely discussed, growth shares have been crushed.  The NASDAQ is down about 27.3% YTD and approximately 30% from its late 2021 apex.

Bloomberg reports earnings forecasts for the S & P Value Index are rising while growth earnings forecasts have declined “rapidly.”

Moreover, revenue growth forecasts are rising for value while revenue growth rates for growth are declining “considerably.”   Bloomberg further states about one third of growth constituents recorded negative revenue revisions.

Similar observations can be made regarding margins.

The environment is a perfect storm for growth investors; higher inflation and interest rates, slower revenue and earnings growth rates amplified by massive ownership and steep valuations.

Some have suggested today is akin to the 2000 dot.com implosion and the current 30% NASDAQ implosion is only halfway done given the secular trends that are currently in place.

Will this occur?  Will the outperformance of value continue?

It will depend upon inflation and interest rates, revenue and profit growth amplified by liquidity constraints and ownership levels.

Perhaps the only certainty to write is that tomorrow is perhaps more uncertain than in days of futures’ past.

What will happen today?  Will the release of April’s PPI have any impact?

Analysts are expecting a 10.7% and 8.9% increase for the headline and core rate, respectively.  Such readings are also lower than March’s readings, offering further evidence that inflation has peaked but are still extremely elevated.

Last night the foreign markets were down.  London was down 1.95%, Paris down 2.10% and Frankfurt down 1.75%.  China was down 0.12%, Japan down 1.77% and Hang Seng down 2.24%.

Dow and NASDAQ futures are down 0.15% and 0.50%, respectively ahead of the PPI.  The 10-year is up 24/32 to yield 2.84%.  Oil is essentially unchanged.


The views expressed herein are those of Kent Engelke and do not necessarily reflect those of Capitol Securities Management. Any opinions expressed are statements of judgment on this date and are subject to certain risks and uncertainties which could cause actual results to differ materially from those currently anticipated or projected. Any future dividends, interest, yields and event dates listed may be subject to change. An investor cannot invest in an index, and its returns are not indicative of the performance of any specific investment. Past performance is not indicative of future results. This material is being provided for informational purposes only. Any information should not be deemed a recommendation to buy, hold or sell any security. Certain information has been obtained from third-party sources we consider reliable, but we do not guarantee that such information is accurate or complete. This report is not a complete description of the securities, markets, or developments referred to in this material and does not include all available data necessary for making an investment decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Investing involves risk and you may incur a profit or loss regardless of strategy selected. There is no guarantee that the statements, opinions or forecasts provided herein will prove to be correct. If you would like to unsubscribe from this e-mail distribution, please reply to this e-mail and indicate that you wish to unsubscribe in your response.