US inflation rose more than expected; three reasons not to panic with buying-the-dip being rife
After US inflation data came out, I chatted to Charles Payne on Fox News at 4.50am Sydney time (2.50 CT time), about what it means, and why investors don't need to panic
US inflation rose more than expected for the 3rd month. Now US interest rates are only expected to be cut twice, not three times
US inflation was hotter than expected for the 3rd month fueled by rises in oil, electricity, takeaway food and medical costs rising. It took the wind out of market's sails as higher inflation, means interest rates can stay higher for longer. And this is why the Fed is now expected to only cut interest rates 2 times this year instead of 3.
There are three reasons you dont' need to panic…
- CPI rose 3.8% YoY but remember it's down from 9%. But remember that CPI rose more than expected as the US economy is growing quicker than expected. (Running at 2.5% GDP for the first quarter. And that's on top of 3.4% last year. And this is above trend growth).
- Secondly; we can lean into the stronger CPI and economic growth data - and see it's telling us that US corporate earnings this year - are going to be strong. US earnings have been downgraded this year, which sets a low hurdle. Meaning, companies will probably deliver better than expected earnings results and this supports a bullish outlook for shares.
- And lastly, note that S&P500 has dropped 1% five times this year. Each time it's dropped, investors have been buying the dip, given this year is expected to be a good year as corporate America's earnings outlook is improving and so too is the economy. ***
We also saw AI and chip names that have been sold off of late, such as Nvidia, rally over night with its shares $NVIDIA (NVDA.US)$ jumping 1.97% after falling 9.2% from March 26. This supports this theory of buying the dip. Also note that the market's fear gauge, the VIX index, has fallen from this months high and is at 15.80, indicating investors fear is easing.
US earnings season will probably be strong, as we yet again have another low bar. There has been lots of earnings downgrades over the last three months, which sets the market up for earnings surprises and delights to the upside; On top of that; earnings are expected to be negative in the quarter. But grow 14.5% this year. With Sales grow of 5%. So we could see surprise and delights in outlooks as well.
- AI – is at a tip of the iceberg moment. In S&P500 over the last three months, we have seen the most earnings upgrades in chip makers – Super Micro Computer $Super Micro Computer (SMCI.US)$ and Nvidia $NVIDIA (NVDA.US)$ . And nuclear energy companies such are Constellation Energy $Constellation Energy (CEG.US)$ – this is telling
- Also, Expect earnings surprises in energy companies - as they have been heavily downgraded and seen the most earnings downgrades this year – watch Occidental $Occidental Petroleum (OXY.US)$ , Marathon $Marathon Oil (MRO.US)$, APA $APA Group (APA.AU)$. You might also be expecting earnings surprise in lithium companies, given EV demand is growing (despite EV sales falling at Tesla and GM).
- And you should also watch, S&P500 new comber, Uber as it's expected to have a stellar year– with 72% earnings growth – outperforming the market.
Inflation is up in the US, we'll probably see the same thing in Australia too, as oil prices are up 20% this year, and we're all paying higher petrol and electricity prices. But this also supports the push for cheap and clean energy – namely uranium.
- Demand cheap and cheerful and green energy is fuelling uranium prices higher. And we're also seeing uranium companies shares performing better than power companies.
- We're expected to see more demand for uranium especially - as AI and data centre demand is booming withdata centres needing 24-7 energy.
- Plus there's a global push to use enuclear power as a clean energy source by 2050. But Australia is behind on that. At the same time, there is less uranium, with the world's biggest producer of uranium, Kazakhstan experiencing weather issues. It's why ratings agencies and investment banks are upgrading the uranium sector - expecting stocks likestocks, such as Constellation Energy $Constellation Energy (CEG.US)$, that produces 10% of clean energy in US to do well. And Constellation Energy is already one of this year's best performing stocks in the US.
Globally, it's not just green uranium that is defying gravity – but also gold as well - so this year, will be the year for green and gold
- This is supported by rising global demand for commodities, China's economy is back in growth phase.. and Fed cuts on the horizon…
- On one side we have uranium stocks in focus.
- On the other hand it will probably be a year for gold stocks to shine. There are calls for Gold to get to 2500 but maybe even 3000 - what's behind that is that central banks are buying GOLD, including China's central bank. Plus there is a bit of FOMO. And the other tailwind for gold is the there's two rate cuts expected in 2024 (down from three)
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Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.
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Moomoo Official Market Strategist
Investment strategist seen and heard on global media such as Fox News Business, ABC, SBS, Reuters wires.
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102429238 : I'm looking forward to two pieces of data coming out.
Aliencreation : Uhhh.... Charles Payne is a glorified idiot. Even his guests often (politel) point out how ignorant the poor lad is.