Ahead of the Bureau of Labor Statistics posting inflation (‘CPI’) for November, the Dow Jones fell by 150 points on Tuesday. The Dow’s streak of four down days suggests that the market is worried about strong job markets and inflation.
Even if the CPI meets the market’s expectations, it is still above the Federal Reserve’s 2.0% target. While the Fed said it determined interest rate levels based on data, the CPI increase is worrisome.
Core inflation, which excludes food and energy prices, is in the 3.3% range. Four straight months of this inflation rate would suggest the Fed will stop cutting rates. Since September, the 20+ Year Treasury Bond (TLT) has broken down. More recently, it bounced back from the sub-$90 buy zone on strong volume in November. In early December, TLT stock traded above $94.
Stock markets need job hiring to fall. That would weaken spending as total disposable income falls. However, online sales during Thanksgiving, Black Friday, and Cyber Monday increased. That suggests that inflation rates will not fall to the Fed’s target rate.
Investors should be wary of holding retail stocks. Best Buy (BBY) peaked at over $100 to close at $86.71. Conversely, DIY home repair firms like Home Depot (HD) and Lowe’s (LOW) are near their high for the year. Continue holding both of those stocks.
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