The Weekend Edition is pulled from the daily Stansberry Digest.
Well, it happened again...
On Wednesday, the latest inflation report from Uncle Sam came in "hotter than expected"... The March consumer price index ("CPI") rose 0.4% for the month, making for a 3.5% year-over-year gain.
Notably, "core CPI" – which excludes food and energy and has some similarities to the Federal Reserve's preferred inflation measure, personal consumption expenditures ("PCE") – also accelerated by 0.4% in March and 3.8% from a year ago.
In other words, for the third straight month in 2024, the pace of inflation has tracked closer to 5% annualized than the Fed's supposed 2% goal.
Uh-oh.
Elevated inflation... a reported unemployment rate still below 4%... and first-quarter GDP estimated around 2.5% annualized... That leaves little hope that the Fed will cut interest rates anytime soon, which has been the prevailing market expectation.
Volatility picked up this week as a result, just like we saw during previous higher-than-expected inflation readings this year.
But the action this time was arguably more significant...
The 10-year Treasury yield rose almost 20 basis points to above 4.5%, its highest level since mid-November. And the two-year yield rose by 22 basis points to nearly 5%, also its highest since November (before expectations for rate cuts in 2024 became popular).
All of the major indexes experienced a decline on the news.
And suddenly, the U.S. Dollar Index ("DXY") – which measures the dollar relative to other major global currencies – is trading above its 200-day moving average and made a new high for 2024.
What we've repeatedly said could happen – higher-than-expected inflation – has happened.
That isn't a reason to panic. But we should expect some volatility from here...
So... what happens next? Is that it? Has the market fully prepared itself for higher inflation?
Somewhat... But because nobody knows for sure, the market has room for more pain if higher inflation rates – and no interest-rate cuts – move from a prediction to a certainty.
For the prevailing expectations regarding the Fed, I like to look at the CME Group's FedWatch Tool, which tracks the bets of federal-funds futures traders.
After the inflation data was released, bets on rates staying where they are through June rose to 83% from around 43% the day before. These same traders are now also increasingly putting odds on the fed-funds rate staying in a range of 5.25% to 5.5% at the Fed's meeting in July... with the first rate cut coming in September.
For that to happen, it would likely take a series of more "normal" inflation readings – say, 0.1% to 0.2% per month – or a substantially weakening jobs market. Right now, it's hard to argue that the pace of inflation isn't running "hot" – once again.
We can weigh the possibilities from here...
Most folks know the markets favor lower interest rates because they allow businesses to borrow money more cheaply.
That's particularly important to startups that aren't making money yet... or other companies saddled with heavy debt loads. However, the Fed will keep rates higher if it decides the economy needs to cool off more.
It's possible the pace of inflation will slow again if energy costs stop rising. Oil prices have soared 20% since mid-December. That has reaccelerated the inflation data based on many metrics.
It's also entirely possible that inflation will continue this pace as higher costs continue to "stick."
For instance, in Wednesday's CPI report, shelter costs – which make up about a third of the headline data – rose 0.4% from last month and 5.7% from a year ago. That trend won't reverse overnight.
Then, on Thursday, investors received the producer price index ("PPI") data. The PPI increased 0.2% for March, slightly less than the 0.3% estimate. However, the PPI climbed 2.1% on a year-over-year basis, its highest level since April of last year.
If current trends continue, that would upend the whole idea of high(er) 1970s-style inflation being dead and gone... and support the possibility of rate hikes next instead of cuts. The market isn't considering such a possibility.
We're not there yet. The Fed is still projecting cuts to come. And long-term trends for U.S. stocks remain bullish as the "Fed pause" trade stays popular.
But it's possible the inflation and market script could totally flip. I'll continue to monitor the situation in the months to come.
We'll be watching how the market moves over the next few days and into next week to see if this sell-off is brief like others we've seen in 2024... or shows signs of being longer-lasting.
Let's also consider the trade winds for oil...
Oil prices are influenced by a variety of factors and expectations.
One line of thought is that lower interest rates typically stimulate economic activity, which can lead to higher oil prices.
DailyWealth readers know the International Energy Agency ("IEA") recently raised its view on oil-demand growth for 2024, tied to expectations for accelerating economic activity.
So, on one hand, you could argue in a roundabout way that higher inflation data right now – leading to delayed rate cuts – could dampen oil prices because economic activity may not be as strong as anticipated in the future.
Yet, right now, we're seeing economic activity and inflation greater than Wall Street has been expecting... and steady demand for oil.
Then there's the other side of the equation: supply...
The Saudi-led OPEC oil cartel, which controls 40% of global supply, seems intent on keeping prices as high as it can by encouraging a lid on supply from OPEC and so-called OPEC+ nations (including Russia) for the past year.
Now, there are signs that U.S. oil supply is picking up. The U.S. Energy Information Administration just reported that U.S. commercial crude stockpiles rose by nearly 6 million barrels last week, and demand fell by more than 2 million barrels per day during the same period.
The wild card now, though, could be war in the Middle East. Conflicts there could potentially lead to an oil "shock" like the one we saw in early 2022 after Russia invaded Ukraine.
Already, oil prices have risen on news of rising tensions. OPEC member Iran accused Israel of attacking its consulate in Syria early this month and threatened retaliation. This week, Israel warned Iran that it would strike back if Iran attacked Israel.
Iran produces around 4% of global oil supply, and its facilities could be in the crosshairs if tensions escalate. While 4% may not sound too significant, every bit of supply counts, especially if the market gets "tighter."
Other nations like Saudi Arabia – which produces 13% of the world's oil supply – could also become more directly involved if more fighting breaks out. Fortunately, this is still a hypothetical.
In the past week, the price of a barrel of West Texas Intermediate (the U.S. benchmark) and Brent crude (the international standard) are each up close to 1%. The point is... inflation may not come down so easily from here.
Finally, if you're looking for an alternative to all this conventional madness...
I urge you to check out Crypto Capital editor Eric Wade's brand-new free presentation. In in, Eric describes why a "Melt Up" in bitcoin is coming this year... and why the world's most popular cryptocurrency offers the "ultimate alternative to the U.S. dollar."
Given that inflation has been reaccelerating in early 2024, it's a timely discussion. As Eric explains, bitcoin is also about to experience a "reboot" that could strengthen the idea of the popular crypto being an inflation hedge and send its price soaring to $100,000 this year (and beyond).
In part, this is why Eric says the crypto bull market this year – with bitcoin up almost 60% to new all-time highs and many lesser-known coins up by even more – is far from over.
And, importantly, there are ways you can position yourself to take advantage. Eric has found outperformers for years in his Crypto Capital advisory, including and beyond the popular cryptos like bitcoin and Ethereum.
In fact, Eric has recommended more 1,000%-plus winners than any other Stansberry Research analyst, solely by using cryptocurrencies.
And he says now is the time to prepare for possibly the "last and biggest true mania" in cryptos, due to an event that's set for later this month.
So check out his presentation to hear more. If nothing else, you'll hear a free recommendation from Eric... and learn his most important advice for navigating the volatile, but potentially lucrative, crypto market.
Good investing,
Corey McLaughlin
Editor's note: In a matter of days, bitcoin is going to experience its fourth "reboot." Every single time bitcoin has "rebooted" in the past, it soared by an average of 4,369%. Even some of the smaller altcoins were taken along for the 1,000%-plus-gain ride. Eric details how to get in position for this massive moneymaking event in his latest prediction... Tune in to learn all the details while you can.
