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THE LATEST INFLATION REPORT:
Inflation increased to 3.5%, year over year, driven higher by several categories: Energy prices rose 1.1%, Shelter costs rose 0.4%, egg prices increased by 0.9%, and medical care services surged 0.6%. Core CPI also appears nearly unchanged from a year earlier.
THE STOCK MARKET:
Warren Buffett’s measure of the stock market suggests that prices are expensive. With this gauge, a reading of “100% is said to be fair, at 70%, stocks are a bargain price, and if it’s near the 200% mark – investors are playing with fire.” As of the time I’ve filmed the video, the Buffett Indicator is trading at 193%.
However, in fairness – the Buffett Indicator is said to be somewhat flawed since it doesn’t take into account how interest rates could change a company’s valuation. Critics of the “doom and gloom” say that – in the past, bubbles were something hype, and this isn’t hype because AI is being deployed at an alarmingly fast pace. Plus, even a Blackrock Strategist said “The equity market rally that we’ve seen so far has been driven by earnings growth – If this earnings growth wasn’t taking place, I may have been more open to acknowledging the bubble concept.”
THE HOUSING MARKET:
Fannie Mae found that single-family home prices have increased a whopping 7.4% year-over-year, with 1.7% of that coming in just these last 3 months. It’s said that “the supply of new homes for purchase rose to 477,000 in the month, the highest since 2008” – and, the good news for buyers is that those new constructions are actually selling for 1.9% less than a year ago as the market begins to somewhat “normalize.”
Zillow’s forecast “calls for 1.9% growth over 2024 – slower than long-term norms but a welcome slowdown for first-time buyers.” In this case, the main reason for even more growth is still the very real lack of inventory – and, the higher rates go – the less likely existing sellers are to move, which – coincidently, causes prices to rise.
https://www.zillow.com/research/home-value-sales-forecast-33822/
POWELL RATE CUT:
The Federal Reserve decided NOT to lower rates, which means this is now the 8th month in a row that they’ve decided to hold steady. In terms of what Jerome Powell said about this, he mentioned that “Right now, given the strength of the labor market and progress on inflation so far, it’s appropriate to allow restrictive policy further time to work.”
They’ve also decided to slow the pace of Quantitative Tightening by purchasing more treasuries beginning in June 1st. In this case, instead of letting $60 Billion Per Month “Expire,” they’re only letting $25 Billion Expire and then reinvesting the difference.
After today’s meeting, the most likely scenario is that Jerome Powell makes no changes until inflation begins to subside, which – is hopefully by the end of the year. If it doesn’t – or, conditions worsen – another rate hike might be in order.
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