The June composite and core indexes both came in slightly below expectations, finally bringing the expected consumer price index. The index strengthened the case for the Federal Reserve to start cutting interest rates. It also gave investors the green light to shift from this year’s tech winners to interest-sensitive stocks. The composite index fell 0.1% from May, its first monthly decline since May 2020. Year-over-year, it was up 3%, its lowest in more than three years. The core index, which excludes food and energy prices and tends to be given more weight by the Fed, rose just 0.1% from May. Year-over-year, it was up 3.3%, its smallest increase since April 2021. Data released by the government on Thursday showed a continuation of the downward trend in both inflation measures. Jim Cramer called the CPI data “perfect” in an analysis on CNBC shortly after the release.He said the more sobering data paves the way for lower interest rates, but is not so weak as to raise deflationary fears or make the Fed rush to act. Indeed, the CME FedWatch tool has slightly increased the likelihood of a rate cut at the Fed’s upcoming July meeting. However, the market still most likely expects the first rate cut after the pause to come in September, with subsequent cuts starting to come into view in November and December. In other words, the market is expecting up to three rate cuts by the end of the year. After the June meeting, the Fed was expected to cut only one rate this year. Of course, we’ll have to wait and see what the data shows in the coming months to see what the central bank actually decides to do. Investors will look for more clues on Friday morning, when the June Producer Price Index (PPI) is released. PPI is a measure of wholesale inflation.Those Fed comments boosted many interest-rate sensitive stocks, including solar power manufacturer Nextracker, tool manufacturer Stanley Black & Decker, and electronics retailer Best Buy. At the club’s morning meeting on Thursday, Jim said members need to understand that we are diversifying for days just like this. Not all stocks will go up at once, nor should they. It’s no surprise that tech stocks fell on Thursday. That’s why, as Jim explained, he included some stocks at this late stage of the economic cycle that could benefit if interest rates go down. As the Fed prediction game continues, Thursday’s Consumer Price Report paves the way for earnings season, where earnings and management comments will determine stock price movements. Prices will be the first thing investors are thinking about. Jim said he thinks the Fed should stay the course and cut rates just once by the end of the year, as companies other than Walmart and Costco are reluctant to cut prices.Jim said PepsiCo’s reluctance to cut prices led to mixed quarterly results and a reduced full-year sales outlook. This is reflected in the food and beverages CPI, which was flat in April but rose 0.1% month-on-month in May and 0.2% month-on-month in June. We’ve also been watching housing costs closely, as they’re a big, unavoidable cost for U.S. consumers and a persistent driver of inflation. On a monthly basis, housing costs rose 0.2% in June. This isn’t great because it means prices are still rising, but it’s welcome news after consecutive 0.4% increases in April and May. Housing costs rose 5.2% year-on-year in June, continuing the downward trend seen since March 2023. Conclusion Many investors may have expected the stock market to explode on Thursday’s CPI news. After all, it’s exactly the kind of report we’ve been waiting for. Bond yields have also been falling, which tends to support stocks, especially tech stocks. But the desire to lock in profits and buy stocks with lower interest rates was too strong. The Nasdaq, which had been hitting a six-year high, fell about 2% for the session. .IXIC YTD Mountain Nasdaq YTD While we’re seeing a rotation from stocks that can thrive in any interest rate environment to stocks that are much more sensitive to borrowing costs and the economy, seven of the S&P 500’s 11 sectors are still rising, led by real estate on Thursday. Winners outnumbered losers for the session, but the sheer size of information technology and communications services, which make up more than 40% of the S&P 500 index, masked the strength seen in other sectors. (See here for a complete list of Jim Cramer’s Charitable Trust stocks.) Subscribers to Jim Cramer’s CNBC Investment Club receive trade alerts before Jim makes the trade. Jim will buy and sell shares in the Charitable Trust’s portfolio 45 minutes after he sends out the trade alert. If Jim talks about a stock on CNBC television, we will execute the trade 72 hours after issuing the trade alert. The above investment club information is subject to our Terms of Use and Privacy Policy and Disclaimer. Receipt of any information provided in connection with the investment club does not create any fiduciary duty or liability. No specific results or benefits are guaranteed.
An Aldi supermarket in Alhambra, California, USA, Thursday, June 27, 2024.
Eric Thayer | Bloomberg | Getty Images
The June Consumer Price Index, both the headline and core indexes, finally met expectations, strengthening the case for the Federal Reserve to start cutting interest rates and giving investors the green light to shift away from this year’s tech-heavy stocks and towards interest-rate-sensitive stocks.
