The Myth Of Lower Costs As Inflation ‘Eases’ - InvestingChannel

The Myth Of Lower Costs As Inflation ‘Eases’

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The Myth Of Lower Costs As Inflation ‘Eases’

The disconnect between Wall Street and Main Street. It’s a beautiful thing … if you’ve got extra money at the end of the month. Preferably extra money to invest in the stock market

As we love to do here at The Juice, let’s be real and consider how things really function — day-to-day — on the ground. It’s actually a pretty common sense line of thought.

We’ll start with Main Street, then consider Wall Street. If you’re an investor with spare cash, this should all — almost — be music to your ears. 

As we described in Tuesday’s Juice, large numbers of consumers are struggling to make ends meet, presumably thanks to inflation. So they’re turning to credit card debt that’s going increasingly delinquent.

This isn’t a good recipe for society, in part because the high cost of housing, transportation and everyday necessities helps create these tight budgets. A nation of haves and have nots, where the latter can’t maintain comfortable baseline existences — inequality — is never a good thing. At least from our perspective. 

So, the headlines we saw Tuesday morning on inflation — that it was “flat” and easing — sound great on the surface. However, they don’t reflect reality on the ground. 

Consider a breakdown of some of the year-over-year price changes in a few line items from the inflation report:

  • Rent: +7.2%
  • Personal Care: +6.0%
  • Restaurant Meals: +5.4%
  • Housing: +5.2%
  • Alcohol: +3.7%
  • Pets/Pet Products: +3.5%
  • Prescription Drugs: +3.1%
  • Education: +2.7%
  • Groceries: +2.1%
  • Electronics: -1.0%
  • Appliances: -2.0%
  • Furniture: -2.9%
  • Household Energy: -3.2%
  • Toys: -3.7%
  • Gas: -5.3%
  • Rental cars: -9.6%
  • Smartphones: -12%
  • Airfare: -13.2%

A few thoughts. 

By and large, the things going up in price are things most of us need or you can logically expect people to reasonably need or want. Maybe, with the exception of alcohol! 

The things decreasing in price — with the exception of energy and gas — are discretionary items we can easily cut out of our budgets when times are tough, even if we don’t like having to do it. 

On the ground, you know it’s not getting any (or much) less expensive to rent an apartment, buy a house, have a meal out or make standard, day-to-day purchases for yourself and your pets. Forget the headline number on inflation, these things have hit new, higher baselines on price, particularly in large cities and big metropolitan areas. 

So, if things are tight for you, they’ll likely remain tight. 

If you’re doing well, but keep a close eye on your spending, maybe you’re not buying that new TV, upgrading your smartphone or taking that extra vacation. You’re focused on maintaining cash security. 

If you’re doing really well, maybe you’re completely and wholly unaffected. 

If you’re in the last two groups, you might have cash to spend. If so, hopefully you’ve been investing it in the stock market on the recent downside. 

Just ahead of Tuesday’s market close, consider the one-day gains for the five most searched stocks and ETFs in Trackstar, our proprietary sentiment indicator: 

  • Tesla (TSLA): +6.3%
  • Apple (AAPL): +1.7%
  • SPDR S&P 500 ETF (SPY): +2.1%
  • Nvidia (NVDA): +2.1%
  • (AMZN): +2.6%

For the record, the Nasdaq-100, as measured by Invesco’s QQQ ETF, was up 2.2%

Doesn’t matter if some dude living with six roommates in San Francisco isn’t going to buy the new iPhone after all or will make a couple less Amazon purchases this month. There are plenty of other folks more than willing and able to pick up the spending slack. But our anecdote doesn’t matter, even if we’re right (and we think we are!). 

What matters is that the stock market looks forward. And it likes what it sees:

  • Low to zero chance of a recession after all. 
  • Moderating inflation. 
  • Probably an end to Fed rate hikes. 
  • Consumer spending, certainly on the higher rungs of society, remaining strong, if not getting stronger. 

Wall Street loves this picture. If you’re an investor, who just so happens to live on Main Street, maybe you do, too.  

The Bottom Line: Hopefully you’re not struggling to make ends meet and have cash to spare. If so, double hopefully, you’ve been taking advantage of any recent dips we’ve seen in individual stocks and the broad market. 

It’s the beauty of being an investor. You take a different read of what’s happening on the ground. On Main Street. Maybe you don’t like the way an unequal society looks and feels, but if you have cash in the bank to spend, you might also have cash to put in the market. Call it a nuanced view. 

The writing on the wall looks good for investors. If you bought on recent downside, The Juice thinks it might make sense to not only keep doing so, but to buy on strength. Strength we think we might see in the form of an end-of-2024 Santa Claus rally that could very well extend into 2025. 

In other words, a bull market. Only time will tell.

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