Potentially big trouble lurking for the bulls this summer | Exchange places with Tom Bowley

Last week’s rally to record highs was at least partly due to the somewhat naive CPI report released on Wednesday. Inflation has been at the center of almost every rise and fall over the past few years. Clearly, we’ve seen inflation soar throughout 2021 and 2022, but the annual core CPI has continued to fall since then, despite the Fed saying the federal funds rate hasn’t fallen far enough toward its target level of 2% to warrant it. Diminish. Below are key CPI charts showing the rise and fall of inflation since the start of the pandemic in 2020.

Call me crazy, but here are the annual core CPI rates: tumbling. History shows that when inflation peaks and then rises again, it is a very bullish sign for U.S. stocks. 2023 and 2024 were no different. But there’s one problem, inflation, that no one really talks about.

Inflation likely to rise this summer

There are likely to be some negative/bearish analyst comments this summer. reason? June (+0.19%), July (+0.23%), and August (+0.23%) 2023 had the third lowest monthly core CPI numbers. That means the monthly numbers for the same three-month period as in 2023 would have to be extremely low or we would see a brief three-month spike in the annual core inflation rate at the consumer level. We know that the stock market does not like uncertainty of any kind, and three months of higher inflation can trigger that uncertainty.

Keep in mind that June, July and August figures are typically reported within the first 10 days to two weeks of the following month. So if we see any weakness in these numbers, it’s likely to be from mid-July to mid-September.

Presidential Election Year Cycle

Finally, let’s review typical price movements during a presidential election year.

During this cycle, there tends to be very strong uptrends in late May, June, and early July. Given that our major indices have hit new all-time highs after a period of consolidation, this potential bullish scenario seems certain to me.

But please reconsider this article when the CPI numbers for June, July, and August come out. This could pose a real threat to the major indices during late summer.

I went into much more detail about the inflation scenario unfolding later this year in my “EB Weekly Market Recap” video on YouTube.com. Be sure to check it out and click “Like”. If you haven’t already, be sure to “Subscribe” to our YouTube channel so you don’t miss out on future EB.com videos!

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Happy trading!

tom