The “sticky” consumer price index peaks in 13 years. What this means for inflation.

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This commentary was posted recently by fund managers, research firms, and market newsletter writers and was edited by Barron’s.

The weekly speculator
Marketfield Asset Management
October 14: As we enter the third quarter earnings season, there has been a noticeable shift in the dominant economic narrative. More clearly, the idea that inflationary pressures will prove to be “transient” is beginning to be replaced by a much longer period. September CPI [consumer price index] report was notable for widening the inflationary impulse more than its actual level. This can be seen in a chart of the Atlanta Fed’s “Sticky” and “Flexible” CPI measures, which represent a division of the overall CPI basket into a cycle sensitive and insensitive measure.

The “flexible” CPI has reached over 13%, a level not seen since the early Volcker years, reflecting a very rapid increase in energy costs, as well as some of the more idiosyncratic measures such as the prices of cars in the market. second hand and plane tickets. This measure has been high for several months, but will likely start to decline as the base effect of the late 2020 price spike begins to make year-over-year increases appear smaller in terms of price. percentage. However, the baton has now shifted to the “sticky” CPI, which has just hit a new 13-year high at 2.8%.

It may not seem like a very high level, but housing costs in particular start to ramp up, and once they are under way they usually tend to rise (or fall) for a number of years. quarters. So, unless we see a significant drop in the “flexible” CPI (which would require a reversal of energy, food, or some other important component), the chances of a long run of High CPI seem to have increased.

Bank stocks are good business

The week in 60 seconds
Wells fargo
October 15: Large-cap banks dominated the first week of third-quarter results and, at the macroeconomic level, signaled optimism for loan demand, credit card spending, portfolio credit quality (driving reserve releases). ) and investment banking services (especially mergers and acquisitions). The big four [U.S.] banks posted quarterly EPS of 20% or more above consensus, and we believe that set the tone for yesterday’s broader rally. Still, these four stocks averaged a negative return of 2.2% for the week, as the rate move was too difficult to overcome.

It helps to look at this industry over a longer period of time, not just as a profit-season trade. Almost a year ago we wrote: “We advise being aggressive towards the banks … we have historic valuations, significant upside potential, unencumbered opportunity and catalysts. [reflation and near-term Covid solutions]. ‘ In 2021, large-cap banks dominated momentum indices and ETFs (JPMorgan Chase,


Bank of America
,

and


Wells fargo

are the top 10 titles of


iShares MSCI USA Momentum Factor

AND F [ticker: MTUM]) and since the beginning of the year has posted a total return of 38%. The longer-term technical chart suggests this group still has a relative upside despite the “sell the news” consensus. Finally, banks are trading at a relative price / forward earnings multiple of 52%, against


S&P 500,

an even bigger discount than 11 months ago.

The great automobile shortage

Market Commentary
Cress
October 14: Analysts estimate chip shortages could cost automakers more than $ 200 billion in lost sales this year. The Q3 / 21 will likely see the trough in auto production. According to Auto Forecast Solutions, an industry consulting firm, the chip shortage will cut North American production by more than one million vehicles this year.


Ford

and GM are the most affected: the Ford F-Series, at over 100,000 units, and General Motors’ Chevrolet Equinox, at around 80,000 units. Meanwhile, demand for new and used cars has skyrocketed, with commuters avoiding public transport and car rental companies replacing fleets they scrapped last year.

Rising oil prices: bad for Biden?

Graphic in brief
McClellan Financial Publications
October 13: Over the years, Presidents have said they care about many different topics and causes. But if they really cared about their re-election, they would learn to care more about oil prices …

Anyone who walks out of the house on a regular basis will likely drop by a gas station and see the current gasoline prices in two-foot letters. So we have a greater collective awareness of these price changes than anything we buy, even though gasoline costs are now only a very small percentage of the money we spend. And that awareness has its historical repercussions on how we feel about the White House guy.

When President Biden took office on January 20, 2021, crude oil prices were at $ 53 / barrel. Now they are over $ 80. And his approval, according to Gallup, rose from 57% to 43%. Oil is not the only factor affecting this change in its approval, but it is certainly an important factor.

Discretionary spending increases

Market commentary for the third quarter of 2021
Seelaus Asset Management
October 12: Even with strong political and fiscal headwinds, the economic outlook remains bright as consumers and businesses have been in their best financial position for years. Cash and money market balances have increased over the past year and a half as government support not only cushioned the potential negative impact of the pandemic-era recession, but provided disposable income. higher than what many unemployed people earned while working. Not surprisingly, consumer spending has jumped in recent months (+ 0.8% in August) and many retailers and restaurants have seen demand increase dramatically. We expect to see continued strength in spending on discretionary items like travel, entertainment and meals over the coming months as affluent consumers continue to return to pre-pandemic pleasures. Growing demand for consumer goods, such as outdoor recreation items, is increasingly leading to shortages, and there are more and more reports of out-of-stock items at mainstream retailers. and online. As such, we are in a relatively rare situation where GDP growth is constrained more by the lack of product than by the lack of demand.

Prospects for earnings darken

Sector watch
CFRA
October 11: The S&P 500 is expected to post a 24.4% year-over-year increase in earnings per share, with deficits expected for just two of its 11 sectors. Industrials, Materials and Real Estate are expected to post the biggest gains, while Consumer Discretionary and Utilities sectors are expected to experience year-over-year declines. Major headwinds include more difficult Y / Y comparisons, supply disruptions, and increases in raw materials, labor and transportation. Moreover, due to weakening estimates of GDP growth in the third quarter, as well as a much smaller than expected increase in the non-farm wage bill in September, the third quarter of 2021 could become only the second quarter of the year. the last 49 to see actual results lower than the end of quarterly estimates.

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