U.S. CPI data for May: ‘I think that’s a good situation for equities’

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on Jun 12, 2024
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  • U.S. CPI remained unchanged from a month ago in May.
  • Fundstrat's Tom Lee expects further gains in S&P 500 in June.
  • The benchmark index is currently up some 15% versus its YTD low.

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U.S. equities will likely open in the green today after the U.S. Bureau of Labour Statistics said inflation was up less than expected in May. 

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What to expect from the S&P 500?

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Versus a year ago, the consumer price index (CPI) came in at 3.3% versus the Dow Jones estimate of 3.4%.

Today’s data is a positive for the U.S. Federal Reserve that closely follows inflation to set its monetary policy. Cooler than expected CPI may push the central bank to favour rate cuts at some point in 2024 which, in turn, could be a positive for the S&P 500.

In fact, Fundstrat’s Tom Lee expects the benchmark index to hit 5,500 level by the end of June. On CNBC “Squawk Box”, he said last week:

I think there’s a fundamental case, which is inflation is coming in softer than expected, and I think the job market is cooling but not weakening dramatically — and I think that’s a good situation for equities.

For the month, the headline inflation came in at 0% on Wednesday versus 0.1% expected and 0.3% in April.

Core inflation data for May

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Excluding food and energy, the so-called core CPI came in at 0.2% for the month and 3.4% for the year on Wednesday. The Dow Jones estimates were at 0.3% and 3.5%, respectively.

The core inflation data for May was better than a month ago as well. Note that Fundstrat’s Tom Lee expects the benchmark index to do well even if the U.S. Federal Reserve opts for just one rate cut in 2024.

Because it really shows the Fed is trying to sort of nurture the business cycle and it’s a good environment for stocks. I don’t think one cut or three cuts makes [it] that much different for stocks.

S&P 500 is already up some 15% versus its year-to-date low at writing but Lee remains convinced that it still has room to run to the upside. In May, shelter inflation went up 0.4% for the month and 5.4% for the year, as per the U.S. Bureau of Labour Statistics.

Other notable metrics in today’s CPI report include a 0.1% increase in food and a 2.0% decline in energy index. Motor vehicle insurance inched down 0.1% for the month but remained up over 20% versus a year ago in May.

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