We kick things off this week by digesting inflation as we see it through the lens of the consumer price index (CPI) print for April, which came out last week. And there’s good and bad news. It’s lower than what it was — but higher than what we expected. Does this mean we’ve hit peak inflation?
I’m one of those people who believe it has. As we enter the back half of 2022, the year-ago laps are going to be much tougher, and it’ll be harder to have a hot year-over-year print. That’s why many — us included — believe peak inflation has arrived.
But that’s not the major indicator.
Instead, we want to see inflation decelerating in the month-over-month rates, which has slowly begun. But does that mean inflation will go away anytime soon? Probably not. I think we’ve got a long way to go to fight this battle and it will be a rather painstakingly slow process to return to ~2% inflation rates.
We’re talking another 16 to 20 months.
The 10-year yield has begun to stabilize and, thanks to easing inflation, should continue to do so. And that will allow stocks to push higher if earnings remain strong.
Although, in the event oil marches higher this summer with rising demand, inflation may jump as well — and with rate hikes projected from the Fed, that could be a recipe for disaster for the 10-year and for stocks.
However, I’ve noticed a ton of smart money buying at Spotify (NYSE:SPOT), Shopify (NYSE:SHOP), DocuSign (Nasdaq:DOCU), and SoFi (Nasdaq:SOFI), where execs have all been buying the dip in a big way. And that’s because these management teams believe in their ability to cut expenses, ride through the market volatility, and grow rapidly on the other side.
Indeed, insider buying volume has spiked to a two-year high. And simultaneously, insider selling has dropped to a two-year low. The last time this happened was in March 2020 — right around the bottom of the pandemic-driven selloff.
This is a pretty bullish indicator. The fact that smart money is buying and not selling has us excited about the stocks they’re accumulating.
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