Economic Update and Selling WOOF, Remaining Stake in NET
Today’s inflation data (CPI) wasn’t expected to be great but was even a little worse than anticipated as consumer prices rose 8.6%. That’s up from 8.5% in March and 8.3% in April. One can slice and dice the data a lot of ways but if you want to flag the main issues, they are probably energy and food prices.
Core inflation, which excludes food and energy, was up “just” 6%. That’s down from 8% in March and 7.1% in April.
Looking just at energy it was up 34.6% while food was up 10.1%.
New and used vehicles are still up a good amount (12.6% and 16.1%, respectively), but in many cases a vehicle purchase isn’t as pressing as buying gas, fuel oil and/or food.
Not surprisingly the market didn’t like this news. As of mid-day today, the major market indices are down -2.5% to -3.5%. The yield on the 10-year Treasury is up 4% to 3.15%.
Looking into next week, my best guess is we’ll see some analysts raise their recession probabilities. Most are around 30% to 40% now. I’m betting we see a bunch of 50% calls, possibly some 60% (I’m not talking about people who are just trying to make headlines here). Energy looks to continue to be an issue as the price of crude is higher now than it was in May (i.e., will continue to put upward pressure on June CPI data unless it pulls back).
A few more dates to be aware of:
Next week (June 14 – 15) the FOMC meets. A 50 bps hike is expected. The next meeting is July 26 – 27. Another 50 bps hike is expected. There is no meeting in August. During next week’s press conference we should get some sense of the Fed’s plans for September, etc.
On July 28 we get the first reading of Q2 GDP. Estimates from GDPNow have been trending lower. A few weeks ago the growth estimate was 2.4%, then it went to 1.8%. This week it went to 0.9%. Next update is next Wednesday. Recall that Q1 GDP fell, so if Q2 is negative then that’s recession. Maybe it’s already priced in?
While many of our stocks are off their lows from the day (which isn’t yet done) there are a couple that we’re going to take action on.
SELL UPDATES
First, let’s sell our final one-quarter position in Cloudflare (NET). The stock broke to a new low today (it had been holding above 50) and we still have a 32% gain on this slice. I’m sure we’ll come back to it someday but for now, it’s adios. SELL
Second, let’s sell Petco Health & Wellness (WOOF). This was a trade idea that never got going and we’ll eat the 30% loss and move on. SELL
I’m keeping a close eye on our other positions, especially ZoomInfo (ZI), which is trading very close to support. A breach would likely mean we kick it out.