- Equities pulled back due to adjustments in the probability of rate cuts, that is all. Those who sold on today’s CPI reading will regret that decision as sell pressure will prove short term.
- Historically speaking, the US economy has proved strongest when annualized CPI is at or close to 3% (not 2%). For a rise in the CPI to be bearish, it would need to rise substantially enough to warrant another Fed pivot and hiking cycle. This is nowhere in the cards at the moment.
- The month over month inflation in February, March, and April of last year was 0.4%, 0.1%, 0.4%, respectively. It’s unlikely we will see average month over month inflation exceed 0.3% over the same period this year. A not too hot, not too cold economy is a tailwind to risk assets.
- Assuming the Fed doesn’t act imprudently in response to this single data point, the immediate risk to markets remains unforeseeable defaults in the private sector or a reemergence of bank failures. I remain long.
