The Weekly Update 6/23/2023
In the June update of The Seven Signs of a Changing Economy I did a deep dive into the declining trend in the core inputs to inflation, as measured by the Consumer Price Index (CPI). (Read it Here)
There was another Consumer Price Index (CPI) release since I wrote the June issue, and it confirms my observation that inflation pressures are declining. If you were to read the details of the CPI report you would see the Bureau of Labor Statistics (BLS) acknowledge the “lag” in housing costs being reported.
Once again in real time www.apartmentrents.com has housing costs up +1.4% year over year (YoY) versus the BLS at +4.1%. If the real-time data were used in the CPI calculation the core inflation rate would be an estimated 2.1%, or right at the 2% target rate of the Federal Reserve.
It is for this reason that I believe the Fed is done, or should be done, raising interest rates. But that is not necessarily an “all clear” for the valuations of Corporate America, as measured by the S&P 500.
Valuations are now at a premium to the 20-year average with the technology space valued at an even higher premium. Earnings of these companies must continue higher to justify these valuation levels. Based on this good news on inflation, i.e., interest rate increases on hold, the news inflation news appears priced in. Any negative surprises in the news on a recession, interest rate increase, slow down in GDP, etc., could cause volatility.
Thus, we will continue to systematically invest, but slowly, thoughtfully and with caution.
I’m interested in your thoughts, comments, and observations. Feel welcome to call, email, or stop by the office and say Hi.
James O. Lunney, CFP®
CERTIFIED FINANCIAL PLANNER™ Professional
Securities and advisory services offered through LPL Financial, a registered investment advisor. Member FINRA/SIPC. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual Investing involves risks including possible loss of principal. No investment strategy or risk management technique can guarantee return or eliminate risk in all market environments.