{"id":75713,"date":"2025-06-24T11:10:42","date_gmt":"2025-06-24T11:10:42","guid":{"rendered":"https:\/\/mycryptomania.com\/?p=75713"},"modified":"2025-06-24T11:10:42","modified_gmt":"2025-06-24T11:10:42","slug":"rising-risks-to-the-inflation-outlook","status":"publish","type":"post","link":"https:\/\/mycryptomania.com\/?p=75713","title":{"rendered":"Rising risks to the inflation outlook."},"content":{"rendered":"

A holiday-shortened week still featured plenty of key reports on the economy, the path of monetary policy, and ongoing tensions in the Middle\u00a0East<\/strong>.<\/p>\n

The conflict between Israel and Iran remains a focal point for investors, especially as President Trump announced U.S. strikes against Iranian nuclear facilities<\/strong>. That should keep oil prices elevated and drive commodity indexes near key breakout\u00a0levels.<\/p>\n

There\u2019s also evidence that rising tariff rates are impacting consumer spending patterns<\/strong>. Retail sales during the month of May fell 0.9% from April, which was the largest monthly drop in over two\u00a0years.<\/p>\n

Part of the drop reflects a give back in automotive sales, where consumers pre-bought ahead of expected tariffs. But excluding autos, sales still fell by 0.3% which was worse than expectations for a gain of\u00a00.1%<\/strong>.<\/p>\n

Uncertainty over the impact of tariffs is putting the Federal Reserve in a tough spot. Last week, the central bank elected to keep the short-term fed funds rate unchanged at a range of 4.25%\u200a\u2014\u200a4.50%. That means the U.S. policy rate is the highest above other developed economies<\/strong> (chart below), and nearly double the rate of consumer inflation.<\/p>\n

Chart from Augur Infinity on\u00a0X<\/p>\n

But the Fed is anxious over the impact of tariffs on inflation, with Fed Chair Jerome Powell commenting that \u201cwe expect a meaningful amount of inflation to arrive in coming\u00a0months.\u201d<\/strong><\/p>\n

This week, let\u2019s dive further into evidence that inflation could be inflecting higher<\/strong>, and why you need to keep close watch on commodity prices<\/strong>. We\u2019ll also look at the historically bad year for the U.S. dollar<\/strong>, and another positive catalyst for energy sector\u00a0stocks<\/strong>.<\/p>\n

The Chart\u00a0Report<\/h3>\n

The annual gain in the Consumer Price Index (CPI) peaked in mid-2022 at 9.0%. Since then, a trend of disinflation has taken hold with smaller gains in the yearly rate of change in CPI<\/strong>. But the concern is that rising energy prices and the impact of tariffs could drive inflation to accelerate again<\/strong>. There\u2019s some emerging evidence with the Cleveland Fed\u2019s inflation \u201cnowcast\u201d report that provides a real time estimate of several inflation measures. The estimated annual gain in June CPI currently stands at 2.6%<\/strong> (green line in the chart below), which is up from May\u2019s 2.4% figure. While one month doesn\u2019t make a trend, it\u2019s worth watching closely given several inflationary catalysts<\/strong>.<\/p>\n

Rising energy prices could be another factor behind an increase in inflation. Since the start of June, oil prices are up $13 per barrel. The Fed estimates that a sustained $10 increase in oil prices adds 0.4% to inflation<\/strong>. Investors should closely follow the action in copper prices as well. That\u2019s because copper has one of the highest correlations to 10-year breakeven inflation levels<\/strong> as you can see below. Copper prices are trading just shy of the $5.00 per pound level, which has been tested on a couple occasions over the past year. A breakout would put copper prices at record high\u00a0levels<\/strong>.<\/p>\n

Rising inflation levels could pose a significant problem to traditional asset allocation<\/strong>. Back when inflation surged into 2022, the cornerstone 60\/40 retirement portfolio consisting of 60% stocks and 40% bonds had one of its worst returns ever. While the S&P 500 fell 25% from its peak to the low, bond prices fell as longer-term yields jumped higher<\/strong>. Bonds are supposed to offer a diversification benefit when equity market volatility is rising. But the chart below shows that the correlation between stocks and bonds turns positive as inflation levels rise<\/strong>, especially when core inflation jumps above\u00a04%.<\/p>\n

Following a post-election rally, the U.S. Dollar Index (DXY) peaked in mid-January and took a sharp turn lower. Back in early April following uncertainty around tariffs, DXY took out support at the $100 level<\/strong>, which has been tested and held several times since 2023. After breaking down, DXY back tested the 100 area as resistance and is once again trading near the lows<\/strong>. Since 2000, the dollar is having its worst year-to-date performance as you can see below. That\u2019s despite the U.S. having the highest short-term rates among developed economies, and could point to concerns over the economic growth or fiscal\u00a0outlook<\/strong>.<\/p>\n

Chart from Karl Schamotta on\u00a0X<\/p>\n

The weakening U.S. dollar is a bullish factor for commodity prices. That\u2019s because commodities are commonly priced and traded in dollars. When the dollar is weakening, that increases the purchasing power of non-U.S. buyers, which can boost demand<\/strong>. Rising commodity and energy prices should benefit the revenues and earnings of producers<\/strong>. Another demand catalyst for energy sector equities could come from institutional money managers. The bars in the chart below shows funds managers\u2019 positioning in the sector from BofA\u2019s Fund Manager Survey. Fund managers currently have one of the largest underweights spanning the past 20 years<\/strong>. Past instances of similar underweights has seen the energy sector outperform on a short-term basis.<\/p>\n

Heard in the\u00a0Hub<\/h3>\n

The Traders Hub features live trade alerts, market update videos, and other educational content for\u00a0members<\/strong>.<\/p>\n

Here\u2019s a quick recap of recent alerts, market updates, and educational posts:<\/p>\n

S&P 500 entering a period of poor seasonality.<\/strong>The setup in TOST and why the fundamentals are a tailwind.<\/strong>The inflationary cycle of the 1970s and what it predicts is\u00a0next.<\/strong>Adding a new position in the energy sector to leverage commodity tailwinds.<\/strong><\/p>\n

You can follow everything we\u2019re trading and tracking by becoming a member of the Traders\u00a0Hub<\/strong>.<\/p>\n

By becoming a member, you will unlock all market updates and trade alerts reserved exclusively for\u00a0members.<\/p>\n

\ud83d\udc49You can <\/strong>click here to join\u00a0now<\/strong><\/a>\ud83d\udc48<\/strong><\/p>\n

Trade Idea<\/h3>\n

Cyberark Software\u00a0(CYBR)<\/p>\n

The stock ran up to the $420 level in February and returned to that level again this month. CYBR is seeing a smaller pullback off resistance so far, which is allowing the MACD to reset above the zero line. I\u2019m watching for a breakout over\u00a0$420.<\/p>\n

Key Upcoming\u00a0Data<\/h3>\n

Economic Reports<\/em><\/p>\n

Earnings Releases<\/em><\/p>\n

I hope you\u2019ve enjoyed The Market Mosaic, and please share this report with your family, friends, coworkers\u2026or anyone that would benefit from an objective look at the stock\u00a0market.<\/p>\n

Become a member of the Traders Hub<\/strong> to unlock access\u00a0to:<\/p>\n

\u2705Model Portfolio<\/strong><\/p>\n

\u2705Members Only\u00a0Chat<\/strong><\/p>\n

\u2705Trade Ideas & Live\u00a0Alerts<\/strong><\/p>\n

\u2705Mosaic Vision Market Updates +\u00a0More<\/strong><\/p>\n

Our model portfolio is built using a \u201ccore and explore\u201d approach, including a Stock Trading Portfolio and ETF Investment Portfolio.<\/p>\n

Come join us over at the Hub as we seek to capitalize on stocks and ETFs that are breaking\u00a0out!<\/strong><\/p>\n

Come join the\u00a0Hub!<\/a><\/p>\n

Disclaimer: these are not recommendations and just my thoughts and opinions\u2026do your own due diligence! I may hold a position in the securities mentioned in this\u00a0report.<\/em><\/p>\n

Rising risks to the inflation outlook.<\/a> was originally published in Coinmonks<\/a> on Medium, where people are continuing the conversation by highlighting and responding to this story.<\/p>","protected":false},"excerpt":{"rendered":"

A holiday-shortened week still featured plenty of key reports on the economy, the path of monetary policy, and ongoing tensions in the Middle\u00a0East. The conflict between Israel and Iran remains a focal point for investors, especially as President Trump announced U.S. strikes against Iranian nuclear facilities. That should keep oil prices elevated and drive commodity […]<\/p>\n","protected":false},"author":0,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[2],"tags":[],"class_list":["post-75713","post","type-post","status-publish","format-standard","hentry","category-interesting"],"_links":{"self":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/75713"}],"collection":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"replies":[{"embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=75713"}],"version-history":[{"count":0,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=\/wp\/v2\/posts\/75713\/revisions"}],"wp:attachment":[{"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=75713"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=75713"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/mycryptomania.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=75713"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}