The bulls got what they wanted: a Goldilocks CPI. The March consumer price index was up 0.1% month over month, lower than the 0.2% expected. Core CPI (ex-food and energy) up 0.4% month over month, in-line with expectations. Year over year up 5.0%, below expectations of 5.1%. Year-over-year, ex-food and energy, up 5.6%, in line with expectations. Bottom line: inflation is slowly declining. Year-over-year inflation peaked at 9.1% in June 2022 and has been steadily declining since then, now at 5.0%. On that news, S & P futures rallied 30 points, the dollar index dropped and is again near the lowest levels in a year, gold is up 1% and near a 52-week high. Treasury bond yields have declined, with the yield curve steepening. Oil is up to $82 a barrel and looks like it wants to go to $83, which would be the highest level since November of last year. This data raises the prospects that tech could again regain leadership. Tech stocks have seen a modest selloff recently, but cyclicals (energy, materials, industrials) have been strong, and defensive sectors (consumer staples, health care) have also modestly outperformed. Today’s CPI is helpful for the bulls’ central thesis: that the Fed’s tightening period is nearing an end. Many are unconvinced the Fed will actually cut rates later this year, but today’s CPI will lift bank stocks and also give a renewed boost to tech stocks, which would be the biggest beneficiaries of lower rates. Bottom line: the CPI data has a shot at pushing the S & P out of the doldrums. The S & P 500 has been in a very narrow 50-point trading range for over a week. We will likely break out of that range today. Next stop: 4,179, the February 2nd close. Correction: Core inflation rose 5.6% year over year. A previous version misstated the figure.
