The January CPI report was troubling as it rose more than expected. The monthly rate rose by 0.5%, about 0.2% above expectations. The core monthly rate was a tenth of a percent above expectations, at 0.4%. The year-over-year CPI rate rose to 3% from 2.9%. The latest CPI data argues inflation is stuck in a range above the Fed’s 2% target. Accordingly, we should assume that the Fed will almost certainly be on hold for quite a while. The market tends to agree with that assessment, pushing the next full rate cut out to December.
While the headlines are unequivocally bad, it is worth discussing a few details to illuminate the data more clearly.
- Shelter costs accounted for 60% of the increase. While CPI shelter prices remain stubbornly high, they are known to lag market data. If we substitute CPI data with real-time market data, core and headline CPI is near 2% instead of 3.0/3.3%, respectively.
- This marks the third January in a row with higher-than-expected readings. For instance, transportation services added 1.4% versus 0.4% in December. This was led by motor vehicle insurance, which had a similar bump last January. Is there an inadequate seasonal adjustment?
- Could the threat of tariffs have pushed some to front-run tariffs? The ISM services survey noted this was occurring.
- While the monthly data is disappointing, the annual core rate (blue), as shown below, remains range-bound. CPI is rising but still well within the range of the last two years.
One report doesn’t make a trend. The next couple of CPI reports will be very telling. Will the January trends persist, or might they be a one-off instance?
What To Watch Today
Earnings
Economy
Market Trading Update
“Notably, consistent buying pressure has kept the MACD “sell signal” from triggering while money flows remain strongly positive. Sloppy trading keeps the market from getting short-term overbought; however, the compression in the current trading range sets the market up for a breakout. Today, all eyes will be focused on the CPI data. A cooler-than-expected report will send the market back to all-time highs. A hotter-than-expected report will trigger a sell signal and a break of support at the 50-DMA.”
While the headline report did come in hotter-than-expected, an examination below the headlines showed that major components of CPI declined. As I noted yesterday morning on X:
Not surprisingly, the market read through the report to see that short-term anomalies were responsible for the uptick, and the market rallied off of the 50-DMA support. Bonds also rallied back from their weak opening, and buyers continued to step in to buy assets. As of yesterday’s close, the market continues holding support at the 50- and 20-DMA, with positive money flows. Such keeps portfolios allocated at target weights until something changes.
Today, the market will digest the PPI report, likely showing that companies cannot pass on higher costs to consumers. However, it is essential to note that these monthly numbers are meaningless. Variations in the data do little to denote a significant change in the inflation trend, which continues to be lower this year.
Remain focused on what matters most: earnings, buybacks, and money flows.
META Is On A Historic Surge
Shares of META have been up 17 days in a row through Tuesday. For context on this historic winning streak, we lean on Michael Harris. Based on the data table below, courtesy of Richard Dale (@NorgateData), the maximum streak of consecutive gains for an S&P 500 stock is 19 days.
META has been up 17% during its winning streak. Moreover, it has risen sevenfold since late 2022 and almost 40% since the election. META is considered one of the biggest beneficiaries of the AI revolution.META recently laid off approximately 4000 employees but continues to spend significantly on innovation. Between optimism for its advertising revenue and an array of VR gear, Wall Street’s earnings estimates have steadily risen.
However, while the outlook looks strong, those with the most knowledge of the company are selling. Per MarketBeat:
Meta Platforms (NASDAQ:META) insiders are selling stock, and the data is worrisome. InsiderTrades tracks 56 trades in the 90 days leading into mid-February and 189 over the trailing twelve months, with activity ramping sequentially in 2024 and into Q1 of 2025.
Among the most troubling details is that CEO Mark Zuckerberg leads the pack, having sold more than $2 billion and growing.
Growth And Value Are Not Mutually Exclusive
Might Nvidia and Tesla, with price-to-earnings ratios (P/E) nearly double and quadruple that of the S&P 500, respectively, be value stocks? Conversely, is it possible that Ford is not a value stock despite a P/E of 10, a price-to-sales ratio (P/S) of .20, and a 7.5% dividend yield? Based solely on that information, answering the question is impossible. Regardless, we bet most investors classify Nvidia and Tesla as growth stocks and Ford as a value stock.
This article introduces GARP- Growth at a Reasonable Price. As we will detail, by introducing earnings growth expectations into traditional valuation equations, some value stocks may not be quite the gems investors think. Likewise, some growth stocks may be value stocks.
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