What You Missed Yesterday

Tuesday, February 13

Once again—the market is getting hammered by a hotter-than-expected CPI report.

The market had lofty expectations for January’s CPI numbers—analysts projected this would be the first time inflation fell back into the Fed’s preferred 2% range.

Instead, prices stayed firm by rising 3.1% YoY. Shelter prices are once again the main culprit here. While this is an improvement over December’s 3.4% boost—the market needs much lower inflation to justify how high valuations have run since October.

Meanwhile—oil prices are still holding onto higher prices as tensions around the Red Sea continue to escalate. Despite rollercoastering with every new move in 2024—prices are now hovering at 10% higher since January 1st. After all the Fed’s work to slow demand—supply-side pressures may be able to keep inflation going by themselves.

Before the CPI dropped—the major indices already looked pretty shaky in early trading after the market hit fresh highs to close yesterday. Basically, the market got mildly overbought and investors let them correct a little bit. We’re seeing this play out broadly for a lot of earnings in this part of the cycle too. Strong players got overbought during a strong Q4 that devolved into a euphoric buying spree. Now, those companies are offering more muted guidance for Q1 and that’s dragging their valuation back to reality.

This isn’t a full-blown ‘correction’ or anything—but it’s an important trend to keep an eye on as you make investing decisions. How many brands are running a little too hot before they post earnings—and how many are getting piled on after posting more optimistic guidance? We’re going to see a lot of competing narratives for the next month or so as the market tries to determine if it’s the more optimistic managers who have the right view here or if the more conservative teams are right to keep their projections close to the chest.

While all of that plays out, let’s explore the major headlines with long-term predictions and see if we can’t make better sense of the patterns facing this market.

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