Inflation Report Out Friday; Tune In

Friday's May inflation report could have massive implications for the markets. The report will be released at 8:30 a.m. by the Labor Department, and covered by most media. Here's the link to the Government site for all the juicy details: https://www.bls.gov/news.release/cpi.nr0.htm

The economists estimate of May inflation is an increase of +8.3% year over year, matching April's number. The more important data will be the month over month increase, expected to be up 0.6% from April. That will be more representative of current inflation trends. Since the last report, forecasters have hoped for a leveling out on inflation - that is; a decrease in month-over-month levels, showing that inflation has perhaps 'peaked'.

Stocks and bonds fell a lot on Thursday ahead of this report, giving back some of it's recent gains.

Oil and energy stocks, first highlighted here on March 8th posting, continued their rally as oil and gasoline prices continue to rise. The graph here shows gas prices since the summer of 2021 rising from $2.20 or so to the current $4.25 (excluding taxes).

With Crude Oil now at $120/barrell, energy stocks continue their gains. The two energy exchange traded funds (ETF's) FENY and XLE, have rallied 17% and 16.3% respectively since our March 8th post. The overall stock market, S&P 500, has lost 3.5% during that time.

I also recommended owning Gold as a hedge against higher inflation. That has NOT worked. Gold bullion prices and their ETF counterpart investments, lost about 10% since then: GLD, PHYS, SGOL. Higher interest rates hurt Gold's ownership since Gold does not pay any income or interest.

In March I stated, "I think adding or continuing to own a 10%-15% position in Gold and some oil stocks/ETF's may prove to continue adding value to your portfolio moving forward." I still feel this way.

Stock prices may continue to drift lower, but owning energy stocks will probably mitigate your overall portfolio losses. Even if Gold stays even from the $1,850 level, that will provide some ballast to your portfolio balance.

Energy and rent inflation account for 40% of the Consumer Price Index, and I can't see that declining much. Here's the graph on rents showing a 5.1% increase the past 12 months.

I don't know what Friday's inflation number will be, but a sub 8% year over year, or a 0.5% increase or less for May could provide a big rally in stock prices, and a rally in bonds and lower interest rates also. A "hot' number may prove the opposite. Tune in to see.

Thanks for reading.
Good night.