Inflation could be peaking. "Buy the dip" investors are being tested.
Market outlook
U.S. stock indexes rose Wednesday morning after investorsfinally see some signs of inflation peaking. The report came as a relief for the investors amid a highly volatile market. The $Dow Jones Industrial Average (.DJI.US)$ jumps around 1%, while the $S&P 500 Index (.SPX.US)$ gained 0.91%. The $Nasdaq Composite Index (.IXIC.US)$ up 0.17%.
The data
The consumer price index accelerated 8.3% in April and stay near the highest level in more than 40 years, while the Bloomberg consensus expects Wednesday's CPI to ease, for the first time since August, to 8.1% YoY in April from 8.5% in March. Nevertheless, the data, serving as the catalyst of the pump of the day, still indicates slight ease from March's peak.
In April, gasoline and diesel prices were mostly flat, which will weigh on the inflation figure since they comprise about 4% of the inflation CPI Index and are up 48.2% YoY in March.
Wholesale used-vehicle prices (on a mix-, mileage- and seasonally adjusted basis) declined 1.0% in April from March. The Manheim Used Vehicle Value Index declined to 221.2, which was up 14.0% from a year ago, according to Manheim.com.
The jump in inflation has resulted in the Federal Reserve aggressively raising interest rates and plans to shrink its $8.9 trillion balance sheet. The action of the Fed has thrown stocks into correction territory or bear markets. Two of the major reasons for the increase in inflation have been the surging demand caused by the pandemic and supply chain issues.
Analyst Opinion
Today's report will help shape the early read into this and has an ability to move markets in a large manner if diverging from consensus too far.
-said Deutsche Bank AG strategists
We aren't expecting headline CPI to fall all the way to 3% by the end of this year – it's likely to be just under 4% as we are expecting some categories to decline from here – namely energy and used vehicles, while others keep rising but at a slower pace as supply and labor shortages ease.
-Andrew Hunter, Senior U.S. Economist at Capital Economics wrote in the email
While we expect the 8.5% rate in March to mark the peak, CPI inflation is still going to remain uncomfortably high over the next few months before beginning to fall back more markedly in the second half of the year. Gasoline prices have reversed part of their surge seen in March in recent weeks but the decline in April will be modest. It will also be partly offset by the surge in natural gas prices, which will push electricity and utility prices up further.
-Michael Pierce, Senior U.S. Economist at Capital Economics, wrote in mid-April
Hitting 3% inflation in December needs flat prices the rest of the year. Is very unlikely that there will be no month-to-month inflation for the rest of the year. For inflation to fall to a range of 3% to 4% various sub-categories, such as gasoline and diesel along with natural gas and used cars, will need to see price declines. Fortunately, used car prices may have peaked.
-said Forbes senior contributor, Chuck Jones
Trading Economics has an inflation forecast of around 1.9% in 2023, which would bring it back down to the Fed's target.
Inflation Rate in the United States is expected to be 7% by the end of this quarter, according to Trading Economics global macro models and analysts expectations. In the long-term, the United States Inflation Rate is projected to trend around 1.9% in 2023, according to our econometric models.
-Trading Economics posted
The Quantitative and Derivative Strategies (QDS) team of Morgan Stanley prefers 'short the market + hedge with long upside calls' in the current market turmoil. At the same time, they think that the market is "likely to trend lower, but near-term the market could be due for a quick squeeze higher."
Disclaimer: Past performance can't guarantee future results. Investing involves risk and the potential to lose principal. This article is for information and illustrative purposes only.
Source: Forbes, EIA.gov, manheim.com, Bloomberg
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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KingNY-Life : This is another article for retail investors to enter the market to pick up the market. It's too bad.
Silverbat KingNY-Life : It's all a group of liars.
Cactiy KingNY-Life : Brother, in the end, it seems that investment banks think they bet on the market in the short term but hedge with call options to prevent short-term short-term shorting. No one should let you in.
滴咚滴咚 : It is misleading to say that the consumer price index rose 8.3% in April, staying near its highest level in more than 40 years. Is it just that much increase in April (a single month), or is it the overall 8.3% increase over the past 12 months shown in April? Of course, the figures for the past 12 months cannot fall back to 3-5% in a month or two.
Moomoo News Global OP KingNY-Life : I am sorry to hear that. We are just trying to delivery the info that investors concern the most.
Moomoo News Global OP 滴咚滴咚 : The inflation increased increased 8.3% from a year ago or 8.3% YoY. We mentioned it in the data part.