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A Cautiously Optimistic Return to Bullishness

April’s inflation numbers came in lower than expected, prompting bullishness in the markets.
 
   
     
A Cautiously Optimistic Return to Bullishness

Newly released inflation data this morning caused stocks to rally. April's inflation number came in at 3.4%, slightly lower than March’s 3.5%.

The Consumer Price Index (CPI), which is what we are actually measuring when we talk inflation, rose 0.3% in April. This is a slight deceleration from March's 0.4% price increases across the board month-over-month.

April's CPI release came in lower than the 0.4% economists had forecast. Meanwhile, the year-over-year CPI figure of 3.4% matched estimates, according to data from Bloomberg. 

This marks the slowest gain in inflation in three months — and Wall Street is rejoicing.

In fact, Wall Street started the party early with the Nasdaq Composite closing at a record high last night.

Plus, all three major indexes — the S&P, the Nasdaq and the Dow — were set to close near or at all-time highs.

And this actually caused us to lock in our third win in a row since launching my Automated Options system. I’m proud to say we are 3-for-3 on locking in roughly 50% gains per trade. But I digress, back to the larger story…

Wall Street and investors were excited for the release and optimistic about the results. Now that they’re in and inflation is beginning to slow (barely) this has prompted a wealth of optimism in the markets. 
 
Stocks Are On A Run

Stocks are on a run today with investors feeling that the US economy is in good enough shape for the Federal Reserve to start bringing interest rates down from their current highs. We are now seeing this optimism surge with bullishness flowing back into the market.

Wall Street now thinks that the Federal Reserve could cut interest rates sooner than expected.

They are now anticipating two 25 basis point (0.25%) cuts this year. That’s down from the six cuts they were expecting at the start of the year.

After the CPI release, the CME FedWatch Tool, which estimates the probability that rate cuts will happen, shifted drastically.

Markets are now pricing in a 53% chance that the Federal Reserve will begin to cut rates at its September meeting, up from about a 45% chance in March.
 
The Grass Isn’t Greener Everywhere

However, it’s not all sunshine and rainbows here. 

Housing has remained a consistent high-cost problem for inflationary data. Within CPI data, there are multiple indexes and data points the Fed looks at to compile their inflation data.

And many key areas American consumers feel every day are still rising.

One area, in particular, is housing. The index for rent and Owners' Equivalent Rent (OER) each rose 0.4% on a monthly basis, matching March's rise. (Owners' Equivalent Rent is the hypothetical rent a homeowner would pay for the same property.)

Meanwhile, energy prices have continued to rise in April, led by higher gas prices. The index jumped another 1.1% last month, also matching March's increase. Year-over-year, the index climbed 2.6%.

At the same time, gas prices rose 2.8% from March to April after climbing 1.7% in March, so Americans are seeing increased prices at the pump. 

The food index also increased 2.2% in April over the past year.

The index for food at home decreased 0.2% over the month while food away from home rose 0.3%.

Several other indexes also increased in April including motor vehicle insurance, medical care, apparel, and personal care. Motor vehicle insurance was a big gainer in March's inflation report, jumping 2.6%, and has since climbed another 1.8% in April.

So like I said, it’s not all sunshine and rainbows. However, we do have a lot to look forward to with some freshly renewed bullishness entering the market.

The small-cap Russell 2000 Index is up nearly 1%, narrowly beating out the 0.91% increase seen in the S&P 500. 

And the interest rate-sensitive sectors of the S&P are also soaring.

The real estate sector (XLRE) is up 1.72%, technology (XLK) is up 1.86%, and utilities (XLU) are up 1.51%. All these sectors that are considered to be “interest rate-sensitive” are the sectors leading today’s bullish activity.

I am really excited to see some renewed optimism in the markets, and I’m looking forward to the investment opportunities that these sectors can yield us. Stay tuned.
To your trading success, 
 
 

Nate

P.S. With our third win in a row locked into Automated Options, I’d say things are going extremely well. If you’d like to learn more about the service, you can click here to check it out.
   
 
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