Hey y’all,
Yesterday we had a “good” CPI number.
“Good” meaning that inflation fell below 3.0% for the first time since 2021. Overall, sure, that’s a good thing.
Inflation is still high, and people are still feeling the effects. But, in theory, this is a sign that the economy is moving in the right direction.
And the markets seemingly have stabilized and calmed down in response.
Now, all of that is interesting. But is it really important? I asked our experts to weigh in, and I think you’ll be surprised by their thoughts.
Here’s what I asked: “Should people care about the CPI? If yes, why? If no, why not?”
And here are the responses I got…
“Well, shoot no. News and the subcategory ‘economic news’ has no real causation to market moves.
Mainstream media often uses the same headline to explain moves up or down, like ‘CPI is soft’ market moved down in response vs ‘CPI is soft’ so market moved up in response.”
True to form, Jeffry is the least “fundamentals” trader I’ve ever met. He is all about the technicals — the market math that lies behind big market moves. So it’s no surprise that he doesn’t think you should care about CPI…
But what do our other experts think?
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“Yeah that is kind of how I explain it to people when it comes to most of those events,” Nate said, referring back to Jeffry’s comments.
“They’re basically a catalyst for sentiment in my view. If sentiment is very bullish, they look for reasons to buy from the news. If it’s very bearish, they look for reasons to sell the news.
“You could make the argument that over the longer term, stitching all the reports together they do represent an overall view of the economy which, of course, impacts the stock market. The problem with that is that the market actually doesn’t care about the economy in any meaningfully correlated way AND most of the reports (like inflation) are not true representations of reality anyway.
I guess that leaves me at: You should be aware of them but you probably shouldn’t care about them.”
Put that as another tally in the “you shouldn’t care much about them” camp.
I think Nate makes a really interesting point here saying “The market actually doesn’t care about the economy in any meaningfully correlated way AND most of the reports (like inflation) are not true representations of reality anyway.”
Big if true! (And it’s probably true…)
“News is a market-moving event at the time of the news, after that, it gets thrown in a trashcan and then the traders move the market in the direction they want. Agreeing with JT, the media HAS to have a reason the market moves, they can’t believe that the market moves on its own merit or is pushed around by traders.”
This is such a balanced and brilliant take. Geof, who is the only real news trader in our group, still realizes that news is just a flash in the pan.
It creates a short-term opportunity, but it’s not a long-term concern.
And I think the takeaway that the media is driving a narrative that might be completely divorced from what really moves the market is so important.
“I told people in the room today to take it with a grain of salt. We definitely have seen things like CPI, GDP etc create multi-day spurts in the markets – like 72-hour big moves when there’s something really positive or negative.
But there’s always another ‘big report’ right around the corner – like 2-3 a week. It’s funny to see how much less volatility there is even around Fed meetings now than 2 years ago.”
Putting It All Together
So it seems like everyone agrees:
Our guys realize that news can move the market temporarily, but it’s only a sugar high. Real market change happens over time and because of forces that the media doesn’t talk about.
Hope this has been a helpful look into the CPI number and whether or not it’s important.
Have a good one,
— Stephen Ground
Editor in Chief, ProsperityPub