Optimistic on Inflation

By Alex Eule  |  Monday, September 12

Inflation Watch. Stocks rose for the fourth consecutive day with the tech-heavy Nasdaq Composite leading the way, as investors gravitated toward riskier assets. 

The Nasdaq rose 1.3% Monday, bringing its four-session gain to 6.2%. The winning streak comes as investors prepare for the next big inflation report, with the consumer price index due tomorrow morning.

"Stock prices have been rallying since last week, as investors have been anticipating that inflation might not be as persistent as feared earlier this year," economist and investment strategist Ed Yardeni wrote tonight. "Today’s report that three-years-ahead inflationary expectations have dropped to 2.8%, the lowest since early 2021, was clearly welcome news. This all confirms our view that inflation peaked in June and that the S&P 500 bottomed on June 16."

A peak would be particularly good news for stocks, according to Jim Paulsen, chief investment strategist, at The Leuthold Group. 

"During each of the previous seven major inflation cycles, after the annual inflation rate peaked, the stock market essentially bottomed out," Paulsen wrote today. "Consequently, based on the big inflation cycles of the last 100 years, the current stock market LOW is already in, because the inflation rate has already PEAKED!" 

Economists are expecting CPI to have risen 8.1% year-over-year in August, down from July's 8.5%. 

While inflation may have peaked overall, there are indications that certain parts of the market have yet to top out. The digital price index, released by Adobe today, shows that online prices resumed their ascent in August, up 0.4%, after falling 1% in July. Online grocery prices saw their largest year-over-year gain on record, up 14% in August, while electronic prices continued to drop, down 10% from a year ago.

"We expect an improvement in the August headline CPI, but some components may not hit peak inflation for a few more months," Jeffrey Roach, chief economist for LPL Financial, wrote.

DJIA: +0.71% to 32,381.34
S&P 500: +1.06% to 4,110.41
Nasdaq: +1.27% to 12,266.41

The Hot Stock: DXC Technology +6.0%
The Biggest Loser: Mosaic Company -6.8%  

Best Sector: Energy +1.8%
Worst Sector: Consumer Staples +0.4%