The Consumer Price Index (CPI) came in at 0.1% for May- lower than the expected 0.2%. This softer-than-expected reading was driven by notable declines in energy prices, used cars, transportation services, and apparel. However, the most promising takeaway lies beneath the surface.
Shelter costs – which account for nearly one-third of the CPI and typically act as a lagging indicator – have not yet shown a meaningful slowdown. Despite falling real estate prices across major U.S. cities like San Francisco, Austin, Tampa, and Phoenix, shelter still posted a 0.3% month-over-month increase. This is significant: once this category begins reflecting broader price declines, headline inflation could fall more sharply.
Why does this matter? The Federal Reserve may respond. Analysts currently expect two rate cuts before year-end, but a third or even fourth cut could be on the table if inflation trends lower and economic growth remains sluggish.
The June 17–18 Fed meeting is unlikely to bring immediate action, but upcoming meetings in July, September, November, and December remain live. Adding to the pressure is the widening gap between the U.S. Fed Funds Rate and the European Central Bank (ECB) rate — now more than 225 basis points apart — which is likely to draw criticism from President Trump and other policymakers.
Could the Fed cut in July? Probably not. But if they even hint that cuts are being reconsidered, markets could surge. The effect of rate cuts on equity markets is often more powerful than other leading indicators. Growth stocks in particular are poised to benefit.
Historically, summer is a quiet period for equities — and May is traditionally a weak month (“sell in May and go away”). Yet this year, markets rallied strongly in May. If the inflation trend continues and geopolitical risks like tariffs do not materialize, we may be headed toward an unexpected summer rally — with multiple rate cuts fueling the momentum.
————————-
Disclosure: Past performance is no guarantee of future results. Please refer to the following link for additional disclosures: https://lnkd.in/e29X6rN
Additional Disclosure Note: The author has an affiliation with ERShares and the XOVR ETF. The intent of this article is to provide objective information; however, readers should be aware that the author may have a financial interest in the subject matter discussed. As with all equity investments, investors should carefully evaluate all options with a qualified investment professional before making any investment decision. Private equity investments, such as those held in XOVR, may carry additional risks—including limited liquidity—compared to traditional publicly traded securities. It is important to consider these factors and consult a trained professional when assessing suitability and risk tolerance.
Read the full article here