As I anticipated, yesterday’s inflation numbers confirm that inflation is starting to cool off.
On Wednesday, it was reported that the Consumer Price Index (CPI) for April rose 8.3% year-over-year. While this is higher than estimated – economists were calling for consumer inflation to come in at 8.1% – it is still lower than March’s 8.5%.
As reported by the Wall Street Journal, lower annual inflation in April marks the first monthly easing of price increases since August 2021.
This morning, we received the Producer Price Index (PPI) reading for April. The PPI climbed 11.% year-over-year. However, this is down slightly from the 11.5% annual increase in March. Core PPI, which excludes food, energy and trade services, rose 6.9% year-over-year and 0.6% month-over-month. Core PPI for April is down from the 7.1% year-over-year increase in March. These results were in line with economists’ projections.
In today’s Market360, I want to take a deeper look into the latest inflation numbers… and talk about areas of the market that are working amidst the chaos.
Understanding The Latest Inflation Numbers
Based on the latest CPI and PPI readings, it’s clear that consumer and wholesale inflation is cooling off, but we are still talking about the highest inflation readings we’ve seen in decades.
As reported by Bloomberg, food prices rose 0.9% in April and were up 9.4% from April 2021:
The annual gain in food costs was the biggest since 1981 and included record advances in prices for chicken, fresh seafood, baby food and prepared salads.
Bloomberg also highlighted that shelter costs – one of the biggest components of the CPI – rose 0.5% for a third-straight month. Specifically, Owners’ Equivalent Rent – or OER – increased by the most since 2006. (OER is the way housing prices are measured for CPI calculations.)
The report also highlighted the rise in cost for household necessities like energy services, which includes electricity and natural gas, were up 13.7% from a year earlier. This is the biggest move higher since 2008.
But as I said, the decrease from 8.5% in March to 8.3% is a sign that inflation is cooling. That doesn’t mean inflation won’t be here to stay for a while longer.
The fact is there is still a lot going on right now that is contributing to high inflation numbers:
- Action from the Federal Reserve
Investors are still concerned about future action from the Federal Reserve. Last week, Federal Reserve Chairman Jerome Powell said that “inflation is much too high” and did not give any indication that rate hikes of 0.5% were unlikely in the coming months. I should add that he thinks there is a “good chance” that the U.S. could skirt a recession; however, Treasury Secretary Janet Yellen is far more pessimistic. She stated last week that the Fed would have to be “skillful and also lucky” to engineer a soft economic landing.
- Ongoing Supply Issues and China Lockdowns
We are still experiencing supply chain issues stemming from the onset of the COVID-19 pandemic. And with China’s zero-COVID policy locking down their economy, there is a lot of fear that the issues are only going to get worse. In fact, the Wall Street Journal noted that the China lockdowns are now rippling across the globe. For example, they’re affecting tourism in Australia, as well as Brazil, which exports a lot of raw materials to China. They’re also affecting German car production. Apple (AAPL) also warned in its latest earnings report that its production will be interrupted by the China lockdowns. So, if the world did slip into a recession, the catalyst might actually be the China lockdowns.
- The Russia-Ukraine War
The ongoing conflict between Russia and Ukraine is also causing ripple effects across the global economy. Shortages in wheat and fertilizer as well as oil are going to be affecting prices for the foreseeable future.
Ahead of Wednesday’s reading, President Joe Biden said:
I want every American to know that I am taking inflation very seriously and it’s my top domestic priority. The first cause of inflation is a once-in-a-century pandemic. Not only did it shut down our global economy, it threw supply chains and demand completely out of whack… And this year we have a second cause: Mr. Putin’s war in Ukraine.
The bottom line: There are a lot of irons in the fire right now that are adding to the world’s chaos and volatility in the market. There is a silver lining though, and if you follow it, you can still make a tidy profit in the current market environment…
Energy stocks are doing phenomenal right now. Oil cracked $100 Tuesday ahead of the reading. As I write this today, oil is sitting at $106.
As a result of oil’s runup and tech’s fall from grace, yesterday oil giant Saudi Aramco overtook Apple as the most valuable company in the world with a market cap of about $2.43 trillion.
Energy is one of the sectors I’ve been recommending as a hedge against inflation. And at Growth Investor, energy is doing great for us. Case in point: Devon Energy Corporation (DVN). The company reported strong production figures, which led to stunning earnings results for the first quarter. The company produced an average 575,000 barrels of oil equivalent during the quarter, and oil accounted for about 50% of volume. For the first quarter, Devon Energy also achieved core earnings of $1.88 per share, or 317.8% year-over-year earnings growth. The consensus estimate called for earnings of $1.75 per share. Revenue jumped 116.5% year-over-year to $3.81 billion, which was in line with estimates. DVN surged more than 16% in the wake of its strong earnings results to new 52-week highs.
Or we can consider ConocoPhillips (COP), which smashed analysts’ expectations for its first quarter in fiscal year 2022, announced on May 5. First-quarter earnings soared 480% year-over-year to $5.8 billion, or $4.39 per share, up from $1.0 billion or $0.75 per share in the same quarter a year ago. First-quarter adjusted earnings jumped 373.9% year-over-year to $3.27 per share, which beat estimates for $3.03 per share by 7.9%.
ConocoPhillips noted that it produced 1.75 million barrels of oil equivalent per day in the first quarter. For the second quarter, the company expects production to be between 1.67 million and 1.73 million barrels of oil equivalent per day. The stock rallied to a new 52-week high of $107.71 the following day.
These are just two examples of Growth Investor stocks that are boasting strong earnings and sales growth. Most of my Growth Investor stocks are revealing double-digit and even triple-digit earnings growth for the latest quarter.
The fact of the matter is my Growth Investor stocks continue to profit from inflation, and they should remain an oasis in the current chaotic environment. If you want to position your portfolio to prosper, join me at Growth Investor today. You’ll have full access to all of my recommendations, as well as my Weekly Updates, Monthly Issues, Special Market Podcast, special reports, and much more.
P.S. There is a great divide opening up in America – and investing in my Growth Investor stocks will help get you on the right side of it. On one side is a new aristocracy that’s amassing more wealth more quickly than any other group in American history. For people like me, the one percent, life has never been better, more prosperous.
On the other side, the opposite is happening. Wealth is flowing out of the pockets of ordinary Americans at an unprecedented rate.
What’s happening is only going to gather in strength over the coming decades. It certainly won’t weaken.
Few Americans even know that any of this is going on. I’ve never seen anyone from my side of the chasm step forward to explain any of these things.
It’s why I put together this video. In it, I’ll lay out exactly what is happening, including several key steps every American should take right now.
The Editor hereby discloses that as of the date of this email, the Editor, directly or indirectly, owns the following securities that are the subject of the commentary, analysis, opinions, advice, or recommendations in, or which are otherwise mentioned in, the essay set forth below:
ConocoPhillips (COP), Devon Energy Corporation (DVN)