It's all over the news at this point today...
Inflation, as interpreted by the US consumer price index (CPI) hit a 41-year high last month, rising at a collective rate of 9.1%.
On the surface, it sounds bad. But there's a bullish case to be made here even as the Nasdaq and other major stock indices fell more than 1.5% this morning:
When I look at today's "negative" news, I see a buying opportunity. The reason, is because of what I always say about stock prices and markets in general:
"Stock prices anticipate future events, good or bad."
In other words, stock prices look forward, not backward. It's about betting on events "over the horizon" - what we think could happen - even though we can't see or confirm it just yet.
With that in mind, today's CPI info reflects the past situation in June - with oil prices hitting a secondary peak of $115 a barrel. Since then, oil has plummeted to below $100. This morning, it was trading at $96, in fact:
Since early June, other commodities have significantly weakened in price as well:
- Gasoline prices are down 30%
- Copper is down 30%
- Since December, supply chain price pressures (as measured by the NY Federal Reserve Bank's global supply chain price index (GSCPI)) are down 44%.
- Food prices are on the way down as well, if we go by the steep decline in food producers' stock prices since April:
I could go on.
But the point is, much of what the stock market is worried about today and in past weeks...is already in the past.
It seems to me that it's not yet "pricing in" the potential future headlines - which would be inflation coming in below expectations when the July CPI report comes out this time next month.
Perhaps I'm wrong. Nothing in the stock market comes with guarantees. We can only consider risks and rewards.
As traders and investors, we're always obliged to consider our predictions, how our stocks and markets react, and make sure to cover our bets and keep losses to a recoverable level if we're wrong.
But in my opinion, it's not a bad time to consider leaning bullish rather than bearish after the last 6 months of sustained declines.