Is April CPI sending signals to markets about any rate cuts?

The Consumer Price Index (CPI) data came out Wednesday morning, with the inflation reading coming in lower than expected for the month of April. Portfolio Wealth Advisors President and CIO Lee Munson joins Wealth! to provide his insights on the market outlook amid this print that points to cooling inflation.

Munson views the CPI print as positive for markets (^DJI, ^IXIC, ^GSPC), stating that "it suggests we might get some [interest rate] cuts" from the Federal Reserve. However, he notes that rate cuts are not expected to materialize until after the election, describing them as "delayed, it's not completely off the table."

If the Fed were to cut rates, Munson expects a broadening out in the market. He anticipates this move to extend beyond just large growth stocks with massive revenues, saying he expects to see "a very different dynamic" than what occurred in markets pre-COVID.

Regarding cooling inflation, Munson maintains that the labor market and wage growth continue to be an issue.

For more expert insight and the latest market action, click here to watch this full episode of Wealth!

This post was written by Angel Smith

Video Transcript

Well, more Americans are carrying a sour tone on the economy even as the pace of inflation weakens consumer price increases moderated somewhat in April rising 3/10 of a percent month over month as revealed by data from the Bureau of Labor Statistics.

So what does the latest inflation data mean for your investment portfolio?

For more on this?

Joined by a good friend of the show, Lee Munson portfolio, wealth advisor, president and chief investment officer.

Ok.

So what is the inflationary environment play for people's portfolio out there?

Lee?

Well, let's just note all this bad news and inflation.

The S and P 500 made an all time high today, right?

We're almost at 5300.

So obviously this news today is good for the stock market, right?

Because it suggests that we might get some cuts if you look at uh fed fund's future and look at the betting markets that bond market participants do.

We're not really expecting a cut until later this year.

Most most of the statistics or the the the spread is all about after the election.

So we know that the inflation, you know, destroying inflation, it's it's just delayed, it's not completely off the table and when the stock market price is six months forward, and I thought that's what I think that everybody has to realize.

Nobody cares about what happened six months ago.

Nobody cares what happened 30 days ago.

I only care about one thing.

What I think the next 12 months of earnings are gonna be on the aggregate S and P and all the asset classes that I follow and all those are going up.

The only major asset class that I follow that's gonna have declining earnings growth going into next year is the NASDAQ 100.

But the S and P is supposed to go, large value is supposed to go look at, it's going to go from a negative PS to a positive eps over the next 12 to 18 months and all those stocks are increasing their dividends.

So there's a lot of good stuff out there because we all expect, I think on Wall Street that inflation will moderate just at a slower pace.

And today the market has voted what they think about the situation, which is we go up in asset prices when the market finally gets what it wants in the form of that first cut and then the pacing of cuts thereafter.

Where are some of the out performers or where does that even perhaps initiate a pivot?

Well, I'm not sure that there's necessarily a pivot, you know, I'm not sure that once rate starts getting cut, that you're gonna have these clear things that are gonna start working.

What I think that we have to think about is look at what the sectors where we have an increasing amount of earnings.

Now, obviously, in the past, we have this expectation that big tech companies or private equity tech firms that need money cheap, that they're somehow going to do much better when the fed starts cutting rates.

But I would caution everybody.

Nobody is saying that the fed is going to go back to a zero rate interest policy.

That's not really the situation.

We're just trying to get back to maybe 3% 2% fed funds rates.

So I think that what that means for stock portfolios, there's a high likelihood that as soon as we see that pivot, we're going to see more of a broadening out of stock participations and a more broadening out of what stocks are participating in a rally going into next year rather than going back to the mid teens, 10 years ago where it was just large growth stocks that, you know, make a lot of revenues, maybe don't make a lot of profits and, and live off of cheap money.

So I think we're going to see a very different dynamic than we did PRE COVID.

And let's also draw on the, the employment situation here too because a lot of what we're seeing in terms of the inflationary measure and how much the resiliency or the health of the consumer continues to remain positive that draws back to what their employment prospects look like.

How are you measuring that and, and playing that as a portfolio strategy?

Well, I love the EC I, the employment cost index.

I talked about it with you.

I think, I think it was in January.

We were yapping about it.

Uh We've got to see that EC I which is the total cost of hiring a new person.

It's a great index.

It's kind of like my secret sauce.

Uh I got from some great Bond analyst.

I forgot her name.

Sorry, I'm not giving her enough credit.

The EC I is still very stubborn, is still very sticky.

And so I think it's good.

First of all, we have some of the lowest unemployment we've ever had.

That's why we're not getting a recession is because labor is tight.

But as we move forward, the question is, are those labor costs gonna come down?

I'll tell you today's print suggests that services are sticky and labor costs are not going to come down.

And if we have an event in November where we start having mass militarized deportations because Republican wins a unified government, we're going to have even more problems with wage inflation and as much as people want to talk about Silicon Valley and tech cutting jobs, those weren't coders and engineers, those were a bunch of hr professionals and sales people and sort of in the non tech oriented areas of tech and they all got jobs.

Right.

So we're not really seeing these big layoffs.

So, everybody who wants a job basically has a job right now.

And for those who are unemployed, they've got to start upskilling their work.

And I think that that's the, that's just the cold, hard reality.

This is a slow burn.

This isn't like a new idea.

All right.

Uh Making generative.

A, I, our friend, I, I suppose in the age old debate of friend or foe, uh Lee Munson, portfolio, wealth Advisors, President and Chief Investment Officer.

Lee.

Good to see you.

You too.