How to position your portfolio as inflation cools

US Treasury yields (^FVX, ^TNX, ^TYX) are falling on the heels of May's Consumer Price Index (CPI), with its headline figure unchanged from April. Tematica Research chief investment officer Chris Versace joins Morning Brief to discuss the market reaction to the print.

"Clearly, the numbers were better than what the market was looking for. That explains the market move that we're seeing... It's also explaining why we're seeing Treasury yields move lower, particularly for the ten-year," Versace explains. He states that May's CPI is making the market excited about the prospect of interest rate cuts.

However, Versace says investors should not get too excited about this print, as the Federal Reserve will weigh several economic indicators to get an overall inflation picture ahead of any potential cuts. The strategist adds that investors should look for opportunities in the second half of the year as inflation cools and points to Applied Materials (AMAT) as one such opportunity.

For more expert insight and the latest market action, click here to watch this full episode of Morning Brief.

This post was written by Melanie Riehl

Video Transcript

Stocks.

Well, they're rallying and yields are tumbling on the heels of May's consumer price index coming in unchanged from the prior month.

Now, despite the softer than expected print, we've got the Feds press conference still ahead and that could actually maybe pose a risk to this risk on rally that we are seeing.

So to discuss, I want to bring in Chris Versace.

He's Tamati, a research Chief Investment Officer, Chris, it's great to see you.

So we are seeing some optimism clearly play out here in the market.

The market seems to be satisfied and excited about this print.

What's your first take of the number that we got this morning?

I mean, you look at whether you want to look at it on a year over year basis, sequential basis.

Clearly, numbers were better than what the market was looking for.

That explains the move that we're seeing.

Uh you guys covered it very well.

Uh with the strong open.

Uh we're, it's also explaining why we're seeing uh treasury yields move lower particularly for the 10 year.

They're back 4.3% right, right around their lowest levels since early April.

So I I think the takeaway here is the market is getting excited that the prospect or rate cuts or, you know, back on the table.

And so what does that mean for people's portfolio positioning?

Is there a massive kind of shift that they should be thinking about as this puts that cut back on the table?

Even as we're watching some of the CME fed watch probabilities shift for perhaps an earlier rate cut than anticipated.

Well, I let me, let me back up a second brad because they said the market's expecting that, right.

So the, the, the question is, what should we be thinking about?

And when you look at, you know, the last year, we've seen the sequential core CP I hit 0.2% several times, you know, uh June, July October, but at the same time in between those months and really since uh November, December and the first quarter of the year inflation has moved the wrong way.

So uh we have to stop and think about how is the fed going to see this?

What's the message they're likely to, to deliver this afternoon?

Remember, they don't want to get head faked here, right?

They want to make sure that yes, inflation is moving down on a sustained basis.

So they're not gonna rest on any one particular data point, right?

They're gonna wanna see continued good data.

And I think that's the message that Powell is going to come out with this afternoon, potentially throwing just a little bit of cold water on the market's enthusiasm for what it saw this morning.

So for, for folks, I I would just say hold back and let's get through the fed press conference this afternoon before making any snap decisions on this one data point positive though it may be.

So Chris, what's your advice here?

And we'll find out what uh palace is say in just a few hours from now.

But for, for investors overall, at this point in the cycle, a lot of uncertainty that's clearly highlighted even in the reaction that we've seen play out in the markets over the last several weeks.

And we talk about the fact that maybe we shouldn't get too excited about this print.

So what does that then tell us about investor positioning and what makes the most sense at this point?

So we're getting ready for the back half of the year, right?

You know, we're gonna soon segue from the mini wave of investor conferences that we have now, we will be moving into the June quarter earnings season and that's really going to reshape expectations for the back half of the year.

So, you know, kind of what we're doing with the Street Pro portfolio is we're, we're building our shopping list, we're getting ready for the second half of the year and any opportunities that we might see, could that be as soon as you know, the market kind of cooling off after this afternoon.

It's possible.

Could it be when earnings expectations maybe get revised, either lower or higher for the second half of the year?

Could very well be.

So that's, that's how we're kind of, you know, plotting and tacking to get ready for all of this.

What is at the top of that shopping list?

Good question, Brad.

Um, you know where there's some other companies that we've got some smaller positions in um you know, waste management lab Corp, for example, if we got the opportunity to pick up more shares of applied materials, boy, we would love to do it.

Um You know, we've spent a lot of time in the first half of the year, kind of repositioning, you know, bulking up on NVIDIA bulking up on Marvel, given what we see ahead, we also bulk up on Qualcomm.

Uh You know, again, all this kind of ties back to the A I cycle or the A I on device upgrade cycle that I think you guys were talking about quite a bit earlier today.

All right, Chris Versace, who is the thematic research Chief Investment Officer.

Chris.

Great to see you.

Thanks so much for hopping on with us.

Thanks guys.