🚨 Inflation Alert: Unpacking the January CPI Spike 🧨

[Image] February 16, 2024 🚨 Inflation Alert: Unpacking the January CPI Spike 🧨 Happy Friday, traders. Jeff here. Don’t say I didn’t warn you. Last week, I predicted a hot inflation reading. ([Burn Notice Alliance]( members got my forecast early.) And look what happened… [The January Consumer Price Index (CPI) report]( — released Tuesday morning — gave us the first big broad distribution selling day that we've seen since the first week of 2024. The Dow Jones Industrial Average dropped 500 points and the Nasdaq shed over 1% as the market digested the hotter-than-expected inflation data. If you think you can ignore these economic reports, think again… CPI reports provide essential data that help to understand economic conditions, anticipate central bank actions, and assess the potential impact on different sectors and individual stocks. This information is crucial for making informed trading decisions, managing risks, and identifying opportunities in the stock market. I never would’ve consistently beaten the market over 25 years of professional trading without paying close attention to the macroeconomic “big picture…”* What I Look For in CPI Reports When I read each month’s CPI report, I’m keeping my eyes peeled for the following data: Indicator of Inflation The CPI report is a primary measure of inflation, reflecting changes in the price levels of a basket of consumer goods and services. High inflation may erode real incomes and reduce consumption, potentially impacting the revenues and profits of companies, especially those in consumer-facing sectors. Hot inflation is bad for stocks, cool inflation is good for stocks. Monetary Policy Insights Central banks, like the Federal Reserve, closely monitor CPI data to guide their monetary policy decisions, including interest rate adjustments. An unexpected rise in inflation might prompt the central bank to raise interest rates to curb inflation, which can lead to higher borrowing costs for companies and consumers. Or, in this environment, hot inflation could prevent the Fed from lowering interest rates (the thing every bull is waiting for). Sector-specific Impacts Different sectors react to inflation in unique ways. For instance, utility or consumer staple stocks are usually less sensitive to inflationary pressures than luxury goods or non-essential services, which consumers might cut back on during high inflation periods. By analyzing CPI reports, traders can make informed decisions about which sectors will likely perform better (and which will likely struggle) given current inflation trends. Market Sentiment and Expectations CPI reports can greatly influence market sentiment and expectations. A report indicating higher-than-expected inflation may lead to concerns about economic overheating and potential aggressive monetary tightening, causing market volatility (as evidenced by Tuesday’s sell-off). Conversely, lower-than-expected inflation might boost market sentiment by reducing fears of imminent interest rate hikes — or stoking hopes of potential rate cuts. Sponsored What We Learned from the January CPI Report Core CPI: Saw its largest jump in eight months, gaining 0.4% for the month and 3.9% on an annual basis. Shelter Prices: Saw a 0.6% increase for the month, contributing to more than two-thirds of the headline CPI increase, as reported by the Bureau of Labor Statistics (BLS). Shelter costs rose by 6% on a 12-month basis. Food Prices: Experienced a 0.4% rise on the month. Energy Costs: Offset some of the price increases, decreasing by 0.9%. This was largely due to a 3.3% drop in gasoline prices. Inflation-adjusted Hourly Earnings: Increased by 0.3% for the month. However, when adjusted for the decline in the average workweek, real weekly earnings fell by 0.3%. Real average hourly earnings rose 1.4% from a year ago. Used Vehicle Prices: Decreased by 3.4%. Apparel Costs: Decreased by 0.7%. Medical Commodities: Decreased by 0.6%. Electricity Costs: Increased by 1.2%. Airline Fares: Increased by 1.4%. Grocery Store Prices: Ham prices decreased by 3.1%, while egg prices increased by 3.4%. (Sorry, bacon lovers.) Inflation Surges, Stocks Dump Initially, the market didn’t like these numbers at all… Tuesday’s major index dump was well-earned because interest rates ripped. The market is starting to grasp that rate cuts are becoming less and less likely. But the selling didn’t last long. Stocks shrugged the CPI report off pretty strong on Wednesday, with the major indexes regaining a bunch of their losses from Tuesday. The market continues to climb a towering “wall of worry…” There's such bullish animal spirits out there. There's so much greed in the atmosphere. However, inflation remains a pestering pet. At some point, the other shoe is gonna drop, and when that happens, I expect a big sell-off. I’m talking about a real technical sell-off in ‘The Magnificent Seven,’ when traders will say “I’ve had a nice ride, I’ve made some good money on this rally, but I don't know what’s gonna happen next. Time to take profits.” On the institutional side, I’m also expecting some non-news-driven selling in mega-cap tech over the coming days or weeks as longer-term managers get nervous about interest rates and inflation. And I think they have every right to be nervous in this trading environment… What This Means for Your Trading Strategy This CPI report shows that cracks are forming in this mania-driven bubble. Don’t get seduced by this rally. Don’t overextend yourself on the upside. You can trade the surge … but whatever you do, don’t marry it. That being said, for the time being, every major sell-off is being bought up violently by greedy bulls. You don’t want to get ahead of yourself by building bearish positions just because cracks are forming. REMEMBER: The trend is your friend (for now)... We’re still stuck in this AI-mania-driven, 1999-esque, dot-com-ish euphoric atmosphere … until we’re not. No one knows when the reversal will take place, and anyone who says they do is lying to you. But over my 25 years of professional trading, there have been very few market environments as bubble-ish as this one. And make no mistake — every bubble ends in a biblical crash. Stay safe out there, traders… Jeff Zananiri P.S. What Are You Waiting For?! Every week, I share the trades I find inside my flagship research trading service — Burn Notice Alliance! Here’s what you’ll get by signing up: - 🔔 4 new trade alerts every week (over 200 opportunities per year) - 👨‍🏫 Stock tickers and complete instructions for your options trade - ⭐ My proprietary ranking system for position sizing - 📖 Full trade analysis and follow-up game plan But you can’t see ANY OF THIS if you don’t join NOW! What are you waiting for?! — [CLICK HERE NOW TO JOIN THE ‘BURN NOTICE ALLIANCE’!]( Sponsored “Calendar Stocks” Wall Street’s Secret Revealed A 20-year Wall Street veteran is breaking the silence on what he’s now calling “Calendar Stocks.” These stocks contain a silent countdown – revealing the exact moment of when to get in… and when to cash out… Unfortunately, most folks have no idea these stocks exist – let alone how to profit from them. But today, that can change for you. 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