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JULY’S CPI GIVES STOCKS THE GO-AHEAD TO SOAR

To us, the CPI data suggests some explosive stock gains are coming down the pike

3d ago · August 14, 2024 By Luke Lango, InvestorPlace Senior Investment Analyst

Key Takeaways:

 * July’s CPI report, released today, showed that the U.S. inflation rate
   dropped from 3% in June to 2.9%, down from a high of 9% two summers ago. At
   2.9%, the current inflation rate is the lowest it has been since March 2021 –
   and the long-term average since 1984.
 * On top of arriving at a long-term CPI average of 2.9%, the Cleveland Federal
   Reserve’s real-time estimates for August’s inflation rate are also hovering
   at 2.6%. That means inflation is set to drop to below-normal levels this
   month.
 * Now that that’s the case, the U.S. Federal Reserve can lower interest rates –
   which, coincidentally, should provide stocks with the fuel they need to keep
   rising.




Source: chayanuphol / Shutterstock.com

For the past two years, inflation has proven to be the stock market’s No. 1
enemy. But this morning’s Consumer Price Index (CPI) report showed that the
inflation problem is largely behind us now. And as a result, stocks have the
‘green light’ to rally on. 

Of course, CPI is widely considered the nation’s best inflation gauge. And the
index’s July report, released today, showed that the U.S. inflation rate dropped
from 3% in June to 2.9%, down from a high of 9% two summers ago. 

At 2.9%, the current inflation rate is the lowest it has been since March 2021. 

In fact, since 1984, the U.S. inflation rate has averaged 2.9%. That means we
have finally landed in ‘back-to-normal’ territory. 

And to us, that signals that some explosive stock gains are coming down the
pike.




NORMAL CPI LEVELS MEAN RATE CUTS AHEAD

Now, on top of arriving at a long-term CPI average of 2.9%, the Cleveland
Federal Reserve’s real-time estimates for August’s inflation rate are also
hovering at 2.6%. That means inflation is set to drop to below-normal levels
this month. 

It appears the inflation problem has finally been fixed. 

Now that that’s the case, the U.S. Federal Reserve can lower interest rates –
which, coincidentally, should provide stocks with the fuel they need to keep
rising. 

At the moment, the market is pricing in between eight and nine rate cuts over
the next year, with the first starting next month. 

That’s enormously positive news. 

Higher rates choked off economic activity over the past two years, freezing the
housing market, stifling the auto market – suppressing pretty much every
debt-driven market out there. For example, just yesterday, Home Depot (HD) said
that high interest rates have significantly dampened demand for remodeling and
construction projects. 

But now, with inflation tamped down to normal levels, lower interest rates will
reinvigorate economic activity over the next two years. The housing market will
heat back up as mortgage rates fall. The auto market will surge once again as
auto financing rates drop. People will start remodeling, and construction
projects will pick back up. 

The economy will get back into a winning groove – and so will the stock market. 




THE FINAL WORD

Yes, stocks have been pushing higher all year long (despite, of course, the
market’s recent selloff). But that rally has been driven primarily by a few big
AI stocks, like Nvidia’s (NVDA), which is up nearly 140% year-to-date. But the
Russell 2000 – full of small-cap stocks that, in my view, represent “real”
America – is up just 2% this year. 

So, in reality, a few AI stocks have been rallying. But the rest of the market
has been stuck in neutral. 

Rate cuts will change that. 

They’ll recharge the economy in a broad, healthy manner that will support “real”
America and power a big rally in all stocks – not just the big AI winners. 

That’s why we think the market just got the ‘green light’ to rally. Today’s soft
inflation report confirmed that the Fed can and will cut interest rates,
starting next month, which means the economy will start its recovery very soon.
As it does, the whole market should rally. 

And in fact, for the past few weeks, we’ve been on a stock buying frenzy in
anticipation of this big rally. 

Check out a few of the picks we like right now.

On the date of publication, Luke Lango did not have (either directly or
indirectly) any positions in the securities mentioned in this article.

P.S. You can stay up to speed with Luke’s latest market analysis by reading our
Daily Notes! Check out the latest issue on your Innovation Investor or Early
Stage Investor subscriber site.

Submit



Luke Lango Editor, Hypergrowth Investing


MEET LUKE LANGO

By uncovering early investments in hypergrowth industries, Luke Lango puts you
on the ground-floor of world-changing megatrends.

Learn more about Luke

--------------------------------------------------------------------------------

Article printed from InvestorPlace Media,
https://investorplace.com/hypergrowthinvesting/2024/08/julys-cpi-gives-stocks-the-go-ahead-to-soar/.

©2024 InvestorPlace Media, LLC


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