The Consumer Price Index (CPI) fell 0.1% last month, following 0.0% the prior month and expectations for a 0.1% increase. Core prices rose 0.1%, a tenth below last month’s reading and the consensus forecast. Year-over-year inflation is down to 3.0%.

The better-than-expected inflation data further affirms the disinflation trend may be back on track. The two graphs below, charting the three-month average of the monthly CPI and the year-over-year CPI, show they are nearing the ten-year average preceding the pandemic and well below the high levels we saw in 2022.

Before cutting interest rates, the Fed may want another month or two of CPI and PCE prices at or below the pre-pandemic average. Such would confirm the year-over-year trend is back on a downward trajectory. However, the Fed is now balanced regarding its reaction to prices and the labor market. If the next CPI is low and the labor market shows further signs of cooling, the September FOMC might be when the Fed makes the first rate cut of this cycle. The odds of a cut at the July 31 meeting rose slightly to 10%. Furthermore, the odds are over 80% that they will reduce rates in September.

What To Watch Today

Earnings

Economy

Market Trading Update

As discussed yesterday, the market has continued to rise as investors chase a small handful of stocks. The rally that began in late October is one of the longest rallies in history. The chart below shows the 37-week rate of change for the S&P 500 index. While there have certainly been periods with larger percentage gains, the current change exceeds 30%, which has historically preceded corrections and consolidations. Conversely, 20% or greater reversions have been decent buying opportunities for investors. The shaded periods show the buying and selling opportunities that have not been that numerous since 1964.

Of course, as noted, just because the market rally currently exceeds 30% does not mean a reversal is imminent. It is just a warning that investors should pay attention to as they continue to manage risk.
 

Greg Valliere’s Washington Insight On Biden’s Chances

As promised, we occasionally provide Greg Valliere’s latest political insights throughout this election season. His 40+ years of experience analyzing and assessing the political landscape helps us gauge what the coming election may bring so we can focus on what that means for our investments.

Beneath his latest thoughts on the coming election and President Biden’s predicament, we share the current betting odds. The source is Election Betting Odds, which aggregates five betting platforms. As of yesterday, Kamala Harris is slightly favored over Joe Biden, while Donald Trump is the clear favorite.

THE ISSUE IS NOT WHETHER JOE BIDEN WILL STEP DOWN — it’s simply when, our sources are reporting, after the president’s campaign essentially collapsed yesterday. We have no idea when Biden will drop out — it could come as early as his press conference today, but more likely not until late July, ahead of the Democrats’ national convention, which runs from Aug.19 until Aug.22.

MOST POLLS SHOW BIDEN TRAILING by only 2 or 3 points nationwide, a remarkably tight margin, considering his disastrous debate performance two weeks ago. Why?

OUR TAKE is that most voters made up their minds months ago — and they tuned out of the cringe-inducing debate. The public shrugged off the Trump guilty verdicts in NYC, which had virtually no impact on the polls.  And the public probably isn’t wondering about Biden’s Parkinson’s doctor.

THE RACE MAY BE SURPRISINGLY CLOSE, but the outlook isn’t good for Biden because he still trails in virtually all of the key battleground states — Georgia, Nevada, Arizona, North Carolina, etc. And in the most important state of all — Pennsylvania — Trump appears to be ahead. Biden has a small lead in Wisconsin and Michigan.

THE ELECTORATE DECIDED MONTHS AGO that Biden was too old to be president, and that concern has grown. The public overwhelmingly believes that Biden isn’t fit to serve for four and a half more years; perhaps the only game changer would be signs that Trump’s cognitive skills are failing — but you underestimate Trump at your own peril.
 

Is Private Equity For You?

Lance Roberts wrote a thoughtful article this week about private equity. His article, Private Equity – Why Am I so Lucky, helps readers appreciate the rapidly growing $4.4 trillion asset class. Notably, he provides three risks often accompanying private equity investments and why they may be better served for high-net-worth individuals and pension and endowment funds. To wit:

There are significant differences to consider between the vast majority of retail investors and high-net-worth individuals before investing in private equity. The underlying risks of private equity investments can define these differences. There are many risks, but I want to focus on three.

• Liquidity Risk
• Duration
• Loss Absorption

He thoroughly explains those risks and how they differ from traditional investments. Furthermore, he dispels the notion that private equity investments are better than the stocks and bonds most retail investors own. Per the article:

To that point, you should realize that most private equity investments (65%) either fail or return the initial investment at best.

The article does not dissuade individuals from making private equity investments. However, it raises awareness of the risks and complications associated with private equity and how they differ from what most stock and bond investors are used to.

Does this mean that you should never make a private equity investment? Of course not. However, you must understand the risk of investing and the potential ramifications on your financial situation when something goes wrong.

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