Hot inflation = the end of the rally?

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Yesterday’s hotter-than-expected inflation report shook Wall Street, as the central bank is unlikely to cut interest rates anytime soon. Traders zeroed in the supercore inflation reading as a cause of concern. This metric excluded food, energy, shelter and rent costs from its services reading. (This data is important because the Fed said housing inflation is a temporary problem and not a good inflation measure.) Supercore accelerated to a whopping 4.8% pace year-over-year in March — the biggest jump in 11 months. What’s more, if a trader takes the readings of the last three months and annualized them, we’re looking at a supercore inflation rate of more than 8%. Obviously, it is not a good number. As for the CPI, it rose 3.5% year-over-year last month. Traders took the June rate cut off the table and began pricing in the first cut happening in September. There’s almost nothing in the inflation data that would make Fed officials feel comfortable with cutting rates anytime soon. - “At the end of the day they don’t really care as long as they get to 2%, but the reality is you’re not going to get to a sustained 2% if you don’t get a key cooling in services prices, [and] at this point we’re not seeing it,” said Stephen Stanley, chief economist at Santander U.S. Stephen Stanley, chief economist at Santander U.S. (Photo: CNBC) So, there are whispers on Wall Street that another rate hike is possible. It will be important for the next few inflation data to start cooling again, or it might indicate that inflation is getting entrenched. Meaning? A rate hike to push inflation down again. - “At the end of the day they don’t really care as long as they get to 2%, but the reality is you’re not going to get to a sustained 2% if you don’t get a key cooling in services prices, [and] at this point we’re not seeing it,” said Stephen Stanley, chief economist at Santander U.S. - “The question becomes are we looking at something that’s become entrenched here? At some point, I imagine the possibly of rate hikes come back into focus.” All sectors but energy fell yesterday. Real estate was the worst performer with an about 4% decline because higher interest rates could pull down the demand for home buying. The earnings season will kick off this Friday with big banks reporting results. Higher inflation (and a strong economy) typically mean good earnings numbers. We will see if it could spark some fuel in the rally. And of course, earnings guidance will play a big factor in determining Wall Street’s sentiment. A Top Chinese Stock to Own Right Now Today’s Stock Pick: GigaCloud Technology (GCT) Yes, there is some tension between the USA and China right now. But if you are a pure capitalist who is looking for a good investment, GigaCloud Technology is the one to watch out for. Chinese stocks have been in a long bear market due to economic struggles, but they look poised to bounce back. GigaCloud offers a service that Shopify has been struggling to figure out. Namely, it is the logistics company for the B2B market. The current problem is that there are too many touchpoints that prolong delivery time. Let’s say that a factory produces a home gym equipment. It will go to a distribution who will then sell it to reseller/retailer. And of course, they will sell it to the end customer. So, the product goes through two fulfillment centers before reaching the customer. GigaCloud offers logistics management where it would hold all the items directly from factories for distributor and reseller/retailer. As a result, the item goes directly from GigaCloud to the end customer without touching distributors and resellers. (Source: GigaCloud) This lowers the cost for the items since the customer doesn’t need to pay shipping costs that went from the factory to distributor to reseller. Let’s say that a customer orders a lounge chair on Alibaba. GigaCloud will grab it from its warehouse and sends it to the customer without the retailer handling any aspect of the fulfillment. This is very similar to what Amazon does for its Amazon Marketplace clients. (Source: GigaCloud) GigaCloud has a massive network of partners that can deliver items from China to the USA. It covers over 15 ports of loading and 11 ports of destination. It sends 12,000+ containers annually. It also owns 31 large-scale warehouses in 5 countries globally. (Source: GigaCloud) Of course, the operation is powered by AI and machine learning to boost efficiencies. GigaCloud uses AI in virtually every area of its business. They use various data to assist sellers/buyers and manage inventories better. (Source: GigaCloud) Sure enough, GigaCloud is growing rapidly. Its active sellers soared 43% year over year in the third quarter of 2023. Gross merchandise volume jumped 67% on the platform, as well. GigaCloud also added several categories to boost growth. (Source: GigaCloud) As you can guess, GigaCloud boasts an enviable growth story. The third quarter saw a 39% growth year over year. Gross profit grew even more rapidly at 117%. Thanks to its operating leverage, net income skyrocketed by 3,357%. (Source: GigaCloud) Bottom line: Despite its growth potential, the stock is trading at a 13 P/E. Yes, it is a Chinese stock. Wall Street often assigns lower P/E to Chinese stocks due to heightened risks, but if you are willing to take some risk, GigaCloud offers a phenomenal growth story at an attractive valuation. [EARN WHILE YOU LEARN! 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