U.S. CPI report today: ‘don’t chase this equity rally’

S&P 500 gained 1.0% this morning after the U.S. Bureau of Labour Statistics confirmed that inflation eased further in May.

Analyst reacts to today’s inflation data

Versus a year ago, consumer prices were up 4.0% last month – in line with the Dow Jones estimate. Still, Wells Fargo analyst Paul Christopher remains dovish on U.S. equities.

Markets have been trying to convince themselves that rates were going to come down, that the Fed and central banks around the world would not hike by as much as they have.

To that end, he cautioned against chasing this ongoing rally in the benchmark index. The Federal Reserve is scheduled for its policy meeting on Wednesday, June 14^th.

The S&P 500 index is now up close to 15% versus the start of the year.

Core inflation still remained above 5.0%

For the month, inflation gained 0.1% in May – also in line with economists’ forecast.

Core CPI (excluding food and energy) came in up 5.3% year-over-year, indicating that price pressures continue to be a nuisance for consumers. In a recent CNBC interview, Wells Fargo’s Christopher added:

Even if the Fed stays on hold next week, we don’t think it’ll stay on hold for very long. Inflation is too sticky. There’s more downside risk in stocks (a.k.a don’t chase this equity rally).

He cited tighter credit conditions and narrow equities market breadth as other reasons for his dovish view on the S&P 500. For the month, core inflation was up 0.4% last month – line with expectations.