Image Source: Liz West
“Milk was up 17%, poultry up 15.9%, while eggs were up 39.8% in the August CPI report.”
By Brian Nelson, CFA
Hi everyone:
I put together a video several weeks ago on August 27, explaining how consumers were tapped out due to inflationary squeezes, particularly at the grocery store, as a big reason for being incrementally more bearish on the equity markets.
The August CPI report, released September 13, showed that consumer prices advanced 8.3% on a year-over-year basis and are still accelerating, increasing 0.1 percent from July, where the pace was unchanged.
Milk was up 17%, poultry up 15.9%, while eggs were up 39.8% in the August CPI report. We don’t think the market was expecting this sizable food price increase, but we were – a view that accounted for one of the reasons for our move to a more bearish stance last month.
According to the August CPI report, “the food at home index rose 13.5 percent over the last 12 months, the largest 12-month increase since the period ending March 1979.”
Many had been expecting a weak August CPI reading given declines in gasoline prices, but the report has come as a shock to the markets. Following the July CPI report, we had thought headline inflation risks to the market may subside, but our channel checks last month revealed something different, and we were sure to let members know.
We stand by our move to a more bearish stance on August 19. In the video below from August 27, a few weeks ago, I mentioned some of the key incremental trends and pressures that consumers are experiencing, particularly at the grocery store, and sure enough, we’re finally starting to see the immense damage to consumer purchasing power in the government’s August numbers.
We understand that our move from bullish to bearish mid-last month seems abrupt, but please be sure to read more here after watching the video. We’re not ready to “layer on” any put option ideas in the simulated newsletter portfolios just yet as we watch for a technical set-up and for the dust to settle following the report.
Let’s stay cautious on these markets as we await a big rate hike by the Fed.
Video: Valuentum’s Brian Nelson, CFA, breaks down the current market environment, highlighting reasons for the poor market sentiment driven by “tapped out” consumers and investors alike. He expects a big market “flush,” and a challenging next couple years but remains a big fan of stocks for the long haul. Valuentum continues to seek to “raise” incremental cash in the simulated newsletter portfolios as it prepares to weather the storm. Video length: ~10 minutes.
Related: GIS, KHC, KRL, SJM, CPB, POST, M, JWN, AEO, DKS, CALM, ADM, BG, WMT, TGT, COST, BJ, KO, MDLZ, UTZ, PEP
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Brian Nelson owns shares in SPY, SCHG, QQQ, DIA, VOT, BITO, and IWM. Valuentum owns SPY, SCHG, QQQ, VOO, and DIA. Brian Nelson’s household owns shares in HON, DIS, HAS, NKE. Some of the other securities written about in this article may be included in Valuentum’s simulated newsletter portfolios. Contact Valuentum for more information about its editorial policies.
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