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There was a lot of economic data for investors to digest this week.
The latest reports on consumer and wholesale inflation – the Consumer Price Index (CPI) and Producer Price Index (PPI) – as well as the most recent retail sales report were announced. And it all showed the impact of the tightening policy of the Federal Reserve.
Consumers, however, are in a bad mood. Increased tariffs weighed on Americans’ willingness to open their wallets, and that was evident in the retail sales report.
So, in today’s Market 360, let’s understand the latest economic data reports and what investors should do now.
Let’s dive into the details…
Consumer Price Index (CPI)
The Consumer Price Index report for October was released on Tuesday – and it was phenomenal.
The latest CPI report showed that headline inflation was flat in October and rose 3.2% in the past 12 months. As you can see below, consumer inflation is falling…
Core CPI, which excludes food and energy, rose 0.2% month-on-month and 4% in the past 12 months. This was also below economists’ estimates for core CPI to rise 0.3% in October and 4.1% in the past 12 months. Food prices rose by 0.3% in October and energy prices fell by 2.5%, led by a 5% increase in gasoline prices. Also of note is that used vehicles fell 0.8% in October and are down 7.1% in the past 12 months.
I should also add that Ownership Equivalent Rent (OER) rose just 0.3% in October, down from 0.6% in September, which is encouraging.
The bottom line: Consumer inflation is cooling — and that’s great news.
Producer Price Index (PPI)
The Producer Price Index report for October was released on Wednesday morning.
It showed wholesale inflation fell 0.5% in October, and rose 1.3% in the past 12 months, well below estimates for a 0.1% increase. Core PPI, which excludes food, energy and trade, rose 0.1% in October and has increased 3% in the past 12 months. Wholesale gasoline prices fell 15.3% in October and accounted for more than 80% of the October PPI decline.
Also, wholesale service costs were flat after rising for six months, so service inflation is cooling. The fact that wholesale inflation continues to cool rapidly bodes well for lower consumer prices in the coming months.
October Sales Report
The other big news on Wednesday was that the Commerce Department announced the store sales report for October.
The report showed retail sales fell 0.1%, down from a 0.9% increase in September. Economists had forecast a fall of 0.3%, so it came in better than expected.
Seven of 13 categories reported sales were down, led by sales of furniture, vehicles and gas stations. Grocery store sales rose 0.7% in October, so higher food prices may have boosted that figure. The bright spot in the report was health and beauty spending. It rose 1.1% in October.
In the past 12 months, retail sales have increased by 2.5% and are failing to keep pace with inflation, so no wonder consumer sentiment is sour!
What This Means for Investors
Overall, the CPI and PPI reports were much softer than economists expected. So, the latest inflation reports are great news and indicative that inflation continues to moderate around the world. Consumer spending has clearly slowed, and when you couple that with slowing inflation, it means one very important thing: The Fed can cut interest rates.
You may recall that the Fed has a 2% inflation target, and the latest inflation data brings it closer to the Fed’s 2% level. I should also add that Treasury yields along the yield curve have declined sharply and have also fallen following the inflation reports… and that is very bullish.
As of this writing, the two-year, 10-year and 30-year Treasury yields are now below 5%. By comparison, the federal funds rate stands at 5.25% – 5.50%. The Fed doesn’t like to fight market rates, which means it will have to lower interest rates to get back in line with market rates.
(To get my interest rate forecast for next year, click here to become a Growth Investor member. I share my prediction in today’s Growth Investor Monthly Issue for December. The topic will be published tonight.)
So, what does this mean for investors?
It means it’s time to buy stocks!
I foresee falling interest rates to boost stock prices next year. We got a preview of this when Treasury yields fell after the CPI report; the S&P 500 and Dow soared over 1%, while the NASDAQ soared over 2%!
So, we could be in for a breakout 2024, and you don’t want to miss the potential rally. If you have money to invest, the last week of December will be the time to jump in feet first.
Of course, you don’t want to invest in any stocks… you want to focus on those with superior foundations.
As important as a drop in interest rates will be to boost stocks, the upcoming earnings season announcements will also play a critical role in the potential upside of the broader market. The fact of the matter is earnings results for the next three quarters will be amazing, given favorable year-over-year revenue comparisons.
Now, if you’re not sure where to find the cream of the crop basically premium stocksthen consider mine Growth Investor service My Growth Investor stocks are characterized by 3.5 times more sales growth and a whopping 41.8 times more earnings growth than the S&P 500. Also my Growth Investor shares only trade at 14.1 times average fiscal 2024 earnings, and my average Growth Investor stock has had its earnings revised 7.6% higher in the past three months. So, I foresee wave after wave of positive winning surprises in the New Year as well!
To help best position mine Growth Investor Buy Lists for next year, I add three fundamentally superior stocks in today’s Growth Investor Monthly Issue for December. So, join me at Growth Investor today so you can read the issue as soon as it is published.
Once you become a Growth Investor member, you will also have full access to my latest Top Stocks, past Monthly Issues, Weekly Updates, Specialty Market Podcasts and much more.
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(Already a Growth Investor subscriber? Go here to log in to the members-only site.)
Sincerely,
Louis Navellier
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