Inflation Data Was Released This morning
Before markets opened this morning the Bureau of Labor Statistics (BLS) released Consumer Price Index data (CPI, which measures inflation) and the results came as quite a surprise.
Inflation came in at 3% year-over-year. That’s .1% lower than expected on a year-over-year basis and .2% better than expected on a month-over-month basis.
Despite this, the cost of renting and owning a home still climbed.
Prices for shelter climbed by .2% which is actually the smallest gain since August of 2021 and owners’ equivalent rent — which measures the cost of owning a home — climbed to .3%, which is the slowest rate in three years.
Core CPI, which excludes food and energy costs, climbed 0.1% since May. It’s the smallest advance in three years and the first time that core CPI has fallen since the COVID-19 pandemic.
All this sounds pretty positive from the Fed’s perspective, right? We’d think the markets would be rejoicing at the results.
But instead, the opposite is happening. The S&P dropped today, as did the Nasdaq. And money is pouring out of high-growth tech and communication services stocks into “safer” stocks as we see investors making a flight to safety.
We may be seeing the beginning of the sector rotation I’ve been discussing with you the last couple of weeks:
As you can see above, major selloffs are happening in tech, communication services, consumer discretionary, and consumer staples.
Meanwhile, capital is flooding into real estate, utilities, industrials, materials, energy, healthcare, and financials.
That’s certainly what I would call a sector rotation, at least for today. And it’s not uncommon to see money move in and out of sectors like this on a single day basis.
In fact, just a couple of weeks ago we observed a similar day where investors made a flight to safety only to dive right back into high-growth tech the very next day and send it booming.
What we need to watch for here is if this trend continues. If we continue to see sell-offs from tech and communication services and further capital poured into things like real estate, energy, utilities, and financials for a prolonged period of time, then that would signal to us that a longer-term sector rotation is trending.
If that happens, I have plenty of companies I am very familiar with in those sectors that would perform quite well. Let’s stay tuned and see what happens as this week finishes up.
—Nate Tucci
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