Inflation continues to cool ✅, plus energy heats up 📈 and bankruptcies on the rise 💥
Inflation continues to cool ✅, plus energy heats up 📈 and bankruptcies on the rise 💥
The Sandbox Daily (8.10.2023)
Welcome, Sandbox friends.
Today’s Daily discusses:
July inflation report shows further evidence of moderation
as growth takes a breather, crude oil heats up
U.S. bankruptcies YTD totals highest since 2010
Let’s dig in.
Markets in review
EQUITIES: Nasdaq 100 +0.18% | Dow +0.15% | S&P 500 +0.03% | Russell 2000 -0.42%
FIXED INCOME: Barclays Agg Bond -0.65% | High Yield -0.03% | 2yr UST 4.852% | 10yr UST 4.111%
COMMODITIES: Brent Crude -1.35% to $86.37/barrel. Gold -0.24% to $1,945.9/oz.
BITCOIN: -0.14% to $29,397
US DOLLAR INDEX: +0.14% to 102.636
CBOE EQUITY PUT/CALL RATIO: 0.68
VIX: -0.69% to 15.85
Quote of the day
“Investing is the only business I know that when things go on sale, people run out of the store.”
- Mark Yusko, Morgan Creek Capital Management
July inflation report shows further evidence of moderation
This morning, the U.S. Bureau of Labor Statistics released their Consumer Price Index (CPI) report for July. U.S. consumer prices continue to moderate, which should open the door for the Federal Reserve to hit the pause button on future rate hikes.
Headline Inflation
CPI: +0.2% MoM, versus +0.2% estimate and prior month of +0.2%
CPI: +3.2% YoY, versus +3.3% estimate and prior month of +3.0%
Core Inflation
CPI ex-food and inflation: +0.2% MoM, versus +0.2% estimate and prior month of +0.2%
CPI ex-food and inflation: +4.7% YoY, versus +4.8% estimate and prior month of +4.9%
After moving lower for 12 consecutive months (!!), Headline CPI (+3.18%) ticked slightly higher for the month of July – mostly attributable to base effects. CPI is now at the slowest annualized increase since March 2021 (+2.62%).
The table below shows the ramp up and subsequent ramp down in the YoY headline numbers. We are firmly off the cycle peak of +9.06% from last June.
In one year, we have watched 525 basis points of rate hikes (!!) take inflation down from +9.06% to +3.18%. Now that is progress.
The increase in prices was led almost exclusively by housing, with Shelter costs making up 90% of the increase in July and maintaining its steady upward pressure on the monthly print. This lagging shelter category of Core CPI continues to be an issue and one of great contention; many Fed watchers would like to see other reputable, more high-frequency data incorporated into the FOMC’s analysis.
The focus continues to be Core Services inflation (navy blue bar charts below).
On a 3-month annualized basis, headline inflation is 1.9%, while core inflation was 3.1%. Again, these are great metrics. Watching the change in the 3-month figure is key because 1) it sidesteps base effects from a year ago and 2) the more recent months should be capturing the effects of tightening that the Fed is looking for.
Trends and expected stabilization in some core components, such as used vehicle prices, suggest that further progress will be slower and more difficult to achieve.
The Fed’s war on inflation is showing significant progress, no question.
Source: Bureau of Labor Statistics, FS Insight, Ned Davis Research, Axios, Bloomberg, KKR
While growth takes a breather, crude oil heats up
The roller coaster in U.S. equities over the last 4 weeks, specifically within the tech and growth areas of the market, is allowing new leadership to emerge. After all, sector rotation is the lifeblood of bull markets.
As oil futures print new highs, the impact is being felt across broad groups, including the Energy Sector ETF (XLE) and the VanEck Oil Services ETF (OIH) for example – up 14% and 28% respectively over the last 6 weeks.
Energy’s recent dominance has continued in haste since it bottomed out in June. In the short run, the move to the highest levels of the year in WTI and Brent Crude is welcome for energy investors after the commodity spent much of the year consolidating and building a nice base.
Resolving above the anchored VWAP from the June 2022 high indicates bulls are back in control for the 1st time in a year.
Source: All Star Charts
U.S. bankruptcies YTD totals highest since 2010
Through the first 7 months of the year, corporate bankruptcies are being filed at the fastest pace since 2010.
S&P Global Market Intelligence recorded 64 corporate bankruptcy petitions in July, including 1 large company (those with more than $1 billion in liabilities). Excluding the 70 bankruptcy filings in March, July was the largest monthly total going back to 2020.
The recent filings bring the year-to-date total to 402 as of July 31st.
The Consumer Discretionary sector still accounts for the highest number of bankruptcy filings (48) year-to-date, while the Financials sector has slowed its pace after experiencing a windfall of filings in March and April as it appears the pressure on regional banks has subsided for now.
Well-known brands that succumbed to bankruptcy this year include Bed Bath & Beyond, Party City, Vice Media, SVB Financial Group, and mattress maker Serta Simmons.
Source: S&P Global Market Intelligence
That’s all for today.
Blake
Welcome to The Sandbox Daily, a daily curation of relevant research at the intersection of markets, economics, and lifestyle. We are committed to delivering high-quality and timely content to help investors make sense of capital markets.
Blake Millard is the Director of Investments at Sandbox Financial Partners, a Registered Investment Advisor. All opinions expressed here are solely his opinion and do not express or reflect the opinion of Sandbox Financial Partners. This Substack channel is for informational purposes only and should not be construed as investment advice. Clients of Sandbox Financial Partners may maintain positions in the markets, indexes, corporations, and/or securities discussed within The Sandbox Daily.