Inflation rocked the S&P 500 (SPY) this week as the December Consumer Price Index (CPI) report was released on Thursday. Let’s break it down into today’s issue. I think the results will surprise you.
(Enjoy this updated version of my weekly commentary originally published Jan. 12e2023 in the POWR Shares Under $10 Newsletter).
Looking back at last week’s Consumer Price Index (CPI) report, here are the two most interesting data points I’ve seen:
- House prices rose only 0.8% compared to last month. Lodging accounts for about a third of the CPI. Gains in this line have leveled off and are no longer leading to large jumps in inflation.
- Used car prices fell 2.5% last month and 8.8% last year. While used car prices represent a much smaller portion of the CPI – just 3.6% – Fed officials blamed inflation for the spike in used car prices as it started to rise in 2020. I bet Fed economists are still watching the data and are happy with this drop.
This month’s report also marked the third consecutive downward trend in consumer inflation.
I’m not going to come out and declare that we’ve won the war – if you’ve been reading these numbers over the past few months you know I think there’s still more room for cons than pros – but I’ll go on record saying that things trending in the right direction.
The fact that we now have three consecutive months of reports all pointing in the same direction is very positive.
Plus, the fact that the job market has somehow remained healthy gives me a glimmer of hope that the elusive “soft landing” will actually happen.
I found the details encouraging. And based on the rally that followed, it seemed that other traders agreed.
About an hour after the report was released, the stock market (SPY) opened. Shares fell a bit in the open, but recovered to end the day higher.
This might be bullish…
There is so much more to be said about the Fed and inflation and what it all means going forward.
A number of analysts are concerned about how things will look later in the year if inflation stagnates, potentially forcing the Fed to keep rates high.
I do believe Powell when he says there will be no rate cuts in 2023, but I also know that Fed members make their decisions based on data.
It really all depends on whether the trend stays in place.
Stocks are still on the rise this year and the latest inflation data points to a bullish trend. Is it too good to be true? We’ll find out in early February when the Fed meets again.
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Chief Growth Strategist, StockNews
Editor, POWR Newsletter Stocks Under $10
SPY shares closed Friday at $398.50, up $1.54 (+0.39%). Year-to-date, SPY has gained 4.20% versus a percentage increase of the benchmark S&P 500 index over the same period.
About the author: Meredith Margrave
Meredith Margrave has been a well-known financial expert and market commentator for the past two decades. She is currently the editor of the POWR growth and POWR shares under $10 newsletters. Learn more about Meredith’s background, along with links to her most recent articles.