The Market Just Got a Huge Warning Sign
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What is the main topic discussed in this episode?
Inflation is back and Motley Fool Hidden Gems Investing starts now. Welcome to Motley Fool Hidden Gems Investing. I'm Travis Hoey. I'm joined today by Rachel Warren and our substitute for Lou Whiteman, Tyler Crowe. Guys, we're going to talk a lot about inflation today. And before you think that this is going to be a boring episode, we're going to tie this to what this means to investing, because inflation is not all that fun. I don't like it when prices go up. I don't think anybody really does. But it really matters to what's going to happen to the market. So we're going to try to... piece all this together. The thing that came out earlier this week, we'll get to PPI in just a second, but CPI came out earlier this week.
That's the Consumer Price Index. This is what you and I feel when we go to the grocery store or we fill up our gas tank. Inflation, Rachel, was 3.8% in the month of April. That was hotter than expected and much higher than the kind of 2% or 3% that the Fed would like inflation to be at. And things are really picking up. Energy prices were up 6.1%. Vehicle maintenance is up.
What recent inflation trends are affecting consumers and producers?
Food is up. That's the stuff that we feel as consumers. So what stuck out to you in the data and kind of how do you wrap your head around it?
Well, that headline number is up a bit from 3.3% in March. It's the highest annual rate we're seeing since May of 2023. That spike, though, as you noted, it's being heavily fueled by we saw an energy index surge of 17.9% over the last 12 months. Energy commodities spiked 29.2%. Gas prices up 28.4%. Fuel oil rising 54.3%. Core inflation, right, so excluding volatile food and energy costs, also accelerated to 2.8% annually, hitting a monthly increase of 0.4%. But consumers are seeing price hikes in everyday categories, right? You know, electricity costs, motor vehicle maintenance, airline fares. Obviously, the really immediate ramifications are the squeeze on the consumer. I mean, we're seeing inflation outpace annual wage growth.
for the first time in three years that actually drove real inflation adjusted hourly earnings down by 0.3% based on this recent readout. Now, there's been some speculation that this could maybe alter the Fed's playbook, right? We're seeing fixed income markets are kind of adjusting to this higher for longer rate environment. You've got some analysts floating the possibility of a rate hike. But I think ultimately we're seeing a reality where there's this prolonged gap between sticky inflation. We're seeing low yielding traditional bank accounts means the cash reserves might rapidly lose their purchasing power.
How does the Consumer Price Index (CPI) impact everyday expenses?
So there are a lot of first and second order impacts on consumers. And it's something that's not just going to go away, even if the current conflict that we're seeing that's driving some of these price hikes is to abate in the next two, three weeks.
Tyler, one of the interesting things is the market does not really seem to care that the CPI is going up in particular. And one of the pushbacks I always get when I post about this is, hey, as long as the hyperscalers continue to spend a trillion dollars, plus or minus, on building out this AI infrastructure, who cares if bananas are a little bit more expensive or it costs a little bit more to fill your gas tank? There's a little bit of truth to that, but it also seems like it's a little worrying under the surface.
Yeah. And this is not just something that we're seeing in these numbers right now. It's kind of been bubbling under the surface because, like we said, the market's rallying. S&P 500, as we'll call a representative sample of the entire market, is doing well. I mean, it's up 8% this year. The NAX 100 is up 16%. But if you start to look down into the components, there is really like a have and have nots aspect to this, mostly related to AI infrastructure spending and kind of that all the trickle down effects when you get into that. Because right now, only 52% of the stocks in the S&P 500 are now above their 50 day moving average, which basically means you have a almost half, 48% of them are basically like trending down and probably headed down further in the sense of like,
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