TL;DR
- Both the CPI and PPI inflation figures have come in this week, with CPI coming in slightly below expectations and PPI coming in slightly above
- It means we may not have seen the end of rate rises, which could still push the economy into a recession
- Problems in the food supply chain have been present since Covid, and it’s led to raised prices, which could continue to be a problem for years but present an opportunity for investors
- Top weekly and monthly trades
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Major events that could affect your portfolio
While inflation has come down substantially from the highs of last summer, it’s still being watched very closely by those in the know. The Fed’s drastic moves in interest rates to keep a lid on rising prices has been a challenge for businesses across the country, but so far the economy has managed to dodge a recession.
But even though we saw a pause in the rate rise cycle in June, the Fed went right back to raising them in July. Right now it’s looking like we may be at the top of the rate cycle, or at least near it, but that still relies on inflation staying under control.
Which is why inflation indices like the Consumer Price Index and the Producer Price Index are being watched so carefully. Any spike in inflation could lead to more tightening from the Fed, which could be enough to bump the country into recession.
So with that in mind, markets breathed a sigh of relief on the announcement of the CPI figures for July, which showed a modest increase in inflation, taking the annualized figure from 3% to 3.2%. That might not seem like good news as it’s the first increase in the annualized figure in over a year, but it’s been well received given that the figure came in below the expectation of 3.3%. However, markets fell back today on release of the PPI figures which came in higher than expected.
What does this mean for investors? In isolation, it’s not enough to warrant any specific investment decisions, but it’s another piece of data that can help build a picture of where we’re at in the economic cycle.
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On that note, is a recession or a market correction coming? Firstly, it’s important to keep in mind that an economic recession and a market crash aren’t always the same thing. A recent extreme example occurred during Covid, when the stock market boomed while the economy tanked.
Even so, they are related and financial data can provide clues as to what might be going to happen with the stock market. Right now there are some increasing concerns around company earnings, with some analysts of the opinion that a recession (and likely a subsequent market correction) are becoming more likely.
We’ve seen the excitement around AI and efficiency gains prop up company earnings earlier this year, but forward guidance has generally been soft. Negative news is becoming a little more common, with talk this week of WeWork potentially going bust, Tyson Foods closing down processing plants, and layoffs from companies such as Astra and (potentially) Hanesbrands.
But as we mentioned in our monthly performance newsletter, there’s no guarantee on the timing of this. A correction will happen at some point, but the question is whether it will be next week, next month or next year?
For investors, it’s a good time to take a prudent look at their portfolio. Staying invested in growth assets means capitalizing on this bull run while it still has room to grow, but consider shifting a portion of your assets to investments that will shine if and when a downturn does hit, such as the Recession Resistance Kit.
This week’s top theme from Q.ai
Most of us are probably guilty of taking for granted the contents of our refrigerator. Yes, that’s right, the fruit and pasta and (delicious) two-day-old pizza we have at our fingertips any given day of the week is a marvel of the modern economy.
That’s because behind the scenes of the grocery aisles is a massive logistical web of companies and processes which ensures we’re able to buy fresh produce of any kind, any time of year, in any place in the country.
But right now that system is looking a little shaky. Don’t worry, the chances of you needing to become a prepper with a basement full of canned food is pretty slim, but the growing political and economic uncertainty around the world means that food supply chains are coming under pressure.
You’ve probably noticed that food prices have gone up a lot recently, and it’s been a big driver of inflation. In our view, this is a trend that is likely to continue for some time yet, maybe even years. And for investors, anytime there’s price rises, there’s potential for profit.
That’s why we created the Food Fund Kit. We’ve tasked our AI with assessing stocks within a range of different food related verticals, specifically agriculture, fish farming, food retail & restaurants, water treatment and food technology.
Every week our AI analyzes massive amounts of data to predict the stocks and ETFs within these verticals which are expected to perform the best on a risk adjusted basis, and then automatically rebalances accordingly.
Top trade ideas
Here are some of the best ideas our AI systems are recommending for the next week and month.
Tapestry (TPR) – The fashion company is our Top Buy for next week with our AI giving them an A rating in our Quality Value factor. Earnings per share is up 17.7% over the last 12 months.
Forza X1 (FRZA) – The electric boat company is our Top Short for next week with our AI giving it an F rating in Quality Value and Low Momentum Volatility. Earnings per share was -$0.58 over the last 12 months.
Sovos Brands (SOVO) – The food company is a Top Buy for next month with our AI rating them an A in Low Momentum Volatility and Technicals. Revenue was up 21.4% over the last 12 months.
Sitime (SITM) – The precision timing company is a Top Short for next month with our AI giving them an F rating in Growth and Quality Value. Revenue is down 30.7% over the last 12 months.
Our AI’s Top ETF trades for the next month are to invest in fintech and U.S. natural gas and to short long term and short term Treasuries and utilities. Top Buys are the ARK Fintech Innovation ETF, the United States Natural Gas Fund ETF and the ProShares UltraShort 20+ Year Treasury ETF. Top Shorts are the Vanguard Utilities Index Fund ETF and the iShares 1-3 Year Treasury Bond ETF.
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