C.J. Lawrence Market Commentary – Inflation peaking? Not quite… 

This post was originally written on June 10, 2022, 8:16 PM EST.

Every release of the consumer price index (CPI) is highly anticipated in the current environment, and today was no exception.  May’s CPI was a disappointment to investors, including yours truly, who were looking for a continued gradual decline in the headline inflation rate in line with the previous two-month declines. The 8.6% annualized inflation rate was above April’s 8.3% and set off the “sell everything” stagflation playbook again. 

S&P 500 (SP50-SPX) 6/10/2021 – 6/10/2022

Looking at the sectors, energy was basically flat and financials worst down 6.7% for the week. That is not a good combination. The S&P500 was down 5% for the week on its way to retest the May low around 3,800. See chart.  Drilling down to the stock level, Amazon was one of the worst performers, down 10% for the week despite the 20 for 1 stock split. Amazon is being hit from all sides, the anticipation of a consumer slowdown and overcapacity in its distribution network. Investors seem to have forgotten Amazon’s still robust cloud computing segment AWS. 

Ulta Beauty continues to be a bright spot in omnichannel retail sector, one of the only stocks up for the week.  Meta changing its stocks symbol to META from FB also failed to impress.

Gold is trying to take back its traditional role as an inflation hedge and was up 1.1% for the week, but still up only 2.2% for the year.  That also coincided with some recent relative weakness in the US Dollar vs other currencies like the Euro, given the more hawkish tone out of the European Central Bank regarding interest rates.

10-Year Treasury Yields broke above the previous May 5th high at 3.13%, putting pressure on higher valuation stocks, especially in the Tech sector.  The market is now pricing in sequential 0.5% interest rate hikes by the Fed through September.  

On the economic front, we are seeing historically low levels of consumer sentiment, which is not surprising given the daily negative headlines crossing our televisions. It is still however unlikely we will see a recession in the US this year, but more likely in 2023.  In any case, it is going to be a hot Summer, stay tuned!

Bernhard Koepp is CEO and Portfolio Manager at C.J. Lawrence. Contact him a bkoepp@cjlawrence.com by telephone at 212-888-6342.

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