CPI Hits Two-Year Low And Bank Earnings Smash Wall Street Estimates

TL;DR

• The latest CPI figures were released this week, with the headline annualized rate falling to 5%, its lowest in almost two years
• JPMorgan Chase, Wells Fargo and Citi all released their quarterly earnings and it was hugely positive numbers all across the board
• With so much news hitting us every day, it can be easy to get tunnel vision. But for investors, it pays to look beyond the US to maximize opportunities for gains
• Top weekly and monthly trades

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Major events that could affect your portfolio

There are a number of different measures of inflation, but the most widely used in mainstream circles is the Consumer Price Index (CPI). So while the Fed looks at a number of different measures in addition to CPI, it’s still one of the most important when it comes to interest rate decisions.

This week saw the CPI figures for March released, and it makes for some interesting reading. The headline annualized rate has seen a massive drop from last month, falling from 6% down to 5%, after a rise in prices of just 0.1% for the month.

That brings CPI down to its lowest level in almost two years, and shows that the Fed aggressive cycle of rate hikes is finally making an impact.

For investors it’s not necessarily that number that they should be interested in, but rather what insights that number provides as to what the Fed is going to do about interest rates at the next FOMC meeting on May 3rd. Right now markets appear to be predicting an increase in rates again by 0.25%, but there’s also now a chance that we could see a pause in rate hikes.

Because while inflation data is trending in the right direction, so are the recent jobless figures, new payrolls and other measures of inflation like Personal Consumption Expenditure (PCE).

If the Fed does pause rate hikes it could mean a market rally in the short term, but it definitely doesn’t signal that it’s time to strap in for an all-in bull market with plenty of economic uncertainty continuing to bubble in the background.

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Given that March saw multiple banks either collapse or sold off for relative pocket change in the middle of the night, it’s not really too shocking to think that bank earnings are going to be watched very closely this quarter.

After all, the issue that effectively started the bank run on Silicon Valley Bank and Signature Bank is related to the price volatility of long term debt, an issue which many banks are facing in one form or another. So while the government and the regulators stepped in to provide security, there’s no guarantee that we’ve seen the last of these problems.

Even Warren Buffet went on the record recently to say that “We’re not over bank failures,” but made it very clear that depositors don’t need to worry, saying that, “Nobody is going to lose money on a deposit in a U.S. bank. It’s not going to happen.”

So far the earnings results have been very positive. Three major banks, Citi, JPMorgan Chase and Wells Fargo all announced results today, and all three of them have announced big earnings beats. Citi earnings per share came in at $1.86 against a $1.70 expected, Wells Fargo hit $1.23 against $1.12 expected and JPMorgan Chase was way above the $3.41 expectation with EPS of $4.10 for the quarter.

So for the moment it appears that banks, at least the majors, are on solid footing, but investors should continue to watch the financial sector very closely in the coming months.

This week’s top theme from Q.ai

With a 24/7 news cycle and what seems to be constant emergencies and crises, it can be easy to become focused only on what’s happening right around us. And while the U.S. markets are by far the largest in the world, there are a huge range of assets that go beyond our borders.

Overall the U.S. equity markets make up around 58% of global market cap, with the U.S. bond markets down at about 42% of global market cap. That means around half of the most common financial assets come from other countries. By not considering overseas assets, investors are leaving serious potential returns on the table.

Spreading your investment funds abroad not only provides additional diversification benefits, but also ensures you’re gaining exposure to certain asset classes that aren’t widely represented in the U.S. For example, many of the world’s largest mining and resources companies (including the biggest – BHP Group – worth $155 billion) are not listed on US stock exchanges.

But for investors, gaining access to overseas assets isn’t always that straightforward. Buying assets on foreign exchanges comes with a different set of rules and regulations, meaning most investors will need to utilize funds and ETFs that often come with hefty fees.

At Q.ai, we’ve created the (fee free) Global Trends Kit, which not only offers exposure to investment assets all across the globe, but uses the power of AI to predict their performance each week and rebalance accordingly.

Top trade ideas

Here are some of the best ideas our AI systems are recommending for the next week and month.

Advantage Solutions (ADV) – The sales and marketing company is one of our Top Buys for next week with an A rating in our Growth, Technicals and Quality Value factors. Revenue was up 12.4% in 2022.

Light & Wonder (LNW) – The gambling company is our Top Short for next week with our AI rating them an F in Quality Value, and Low Momentum Volatility. Earnings per share was -$2.09 in 2022.

Arhaus (ARHS) – The home furnishings company is our Top Buy for next month with an A rating in Growth. Revenue was up 54.2% in 2022.

Inspire Medical Systems (INSP) – The sleep apnea treatment company is our Top Short for next month with our AI rating them an F in Quality Value. Earnings per share were -$1.60 in 2022.

Our AI’s Top ETF trades for the next month are to invest in the S&P 500, as well as the oil and gas industries, and to short US micro-caps and financials. Top Buys are the SPDR S&P 500 ETF Trust, the United States Natural Gas Fund and the SPDR S&P Oil & Gas Exploration & Production ETF and the Top Shorts are the Vanguard Financials ETF and the iShares Micro-Cap ETF.

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