EB Daily Market Report - Quick Update - Wednesday, June 12, 2024
Thus far, the stock market has endured a number of risks over the past week or so. Nonfarm payrolls came in hotter than expected and we opened down a bit last Friday, but there was no big selling. Then, coming into this week, we knew we had the May CPI being released this morning and, almost simultaneously, we heard from Fed Chief Powell after its latest 2-day meeting. From the FOMC announcement, not much changed really since the last meeting. The Fed did acknowledge that it sees "modest further progress" on inflation. That's probably a good thing since the May Core CPI reading came in at 0.2% vs. the expected 0.3%. And everyone should know the +0.2% reading was rounded up from +0.16%. The +0.16% reading is the lowest core CPI reading in over 2 1/2 years. I'd call that "modest further progress". The annual core CPI has fallen to 3.41%, its lowest level in 3 years.
Fed Chief Powell has continually said that it needs to see a sustainable decrease in inflation. Here is the latest chart of the Core CPI ($$CCPI):
What do you think? Are we in the midst of a sustainable move in the Core CPI towards 2%. About the only thing left is to actually get to 2%. We've fallen from 6.7% to 3.4%. Why doesn't Powell just say, "when we get to 2%, we'll cut rates." This morning's 0.16% increase in the Core CPI was the LOWEST we've seen since inflation topped.
Anyhow, we're seeing an afternoon selloff after an obviously strong morning session. On a relative basis, it's been more of the same for small caps. The IWM got off to a great start at the opening bell, well ahead of the other major indices. But currently, the IWM's fall from intraday highs has been much steeper than both the S&P 500 and NASDAQ 100.
One positive, however, is that the growth vs. value ratios that I watch are all significantly higher today and have trended up intraday - even AFTER the 2pm ET FOMC announcement in most cases. My ratios are as follows:
- IWF vs. IWD
- QQQ vs. SPY
- XLY vs. XLP
- $DJUSGL:$DJUSVL
- $DJUSGM:$DJUSVM
- $DJUSGS: $DJUSVS
Given this development, I'd say the stock market is telling us that rate cuts are coming, simply be patient. Also, the 10-year treasury yield ($TNX) took another BIG hit today, falling 11 basis points to 4.29%. It reached a low of 4.25%, so it did bounce back a bit this afternoon.
We've got the May PPI due out tomorrow morning. I don't believe this carries nearly the weight that the CPI does, but media outlets will be all over it nonetheless.
Happy trading!
Tom