Soft CPI Data Crushes Inflation Fears – And Sets Stocks Up for a Summer Surge

What a distinction a month makes… Again in early April, shares have been crashing right into a bear market on fears that President Trump’s “Liberation Day” tariffs would freeze world commerce, reignite inflation, and ship the economic system spiraling right into a recession. After April 2’s tariff blitz, shares fell 10% in two days; one thing that’s occurred solely a handful of instances previously 100 years.

Since then – because of tariff rollbacks, resuming commerce flows, and a restabilized world economic system – the market has staged one in all its sharpest short-term rallies ever because the S&P 500 climbed almost 20% in simply over 20 days.

This rally is exhibiting no indicators of fatigue simply but… and we don’t suppose it is going to anytime quickly. 

Simply look to yesterday’s Shopper Worth Index (CPI) report. In our view, it wasn’t only a “good” inflation report – it was the type of knowledge that ought to assist set the stage for an enormous summer season inventory rally. 

Headline CPI got here in at simply 0.2% month-over-month, beneath the 0.3% consensus. It was the identical story for core CPI – a measly 0.2% enhance, additionally undercutting estimates. Practically each main element of the index both cooled or dropped outright: 

• Meals value inflation – down from 3.0% to 2.8% year-over-year 
• Power inflation – nonetheless unfavourable and getting much more so, falling from -3.3% to -3.7%
• Transportation providers inflation – down from 3.1% to 2.5%.

Shelter stayed elevated; however even there, cracks are beginning to present.

In brief, inflation didn’t flare up as so many feared. It fizzled. And on this atmosphere, that’s about as bullish a signal as it gets.

However right here’s the actual kicker: April’s delicate inflation print wasn’t only a signal of easing value pressures. To us, it was a dying knell for what had been the market’s greatest concern this spring: tariff-driven reinflation.

Overblown Inflation Fears Are within the Rearview

After Trump launched the largest tariff barrage because the Smoot-Hawley days on April 4, pundits rang the alarm bells, warning of imminent value spikes. 

However it appears the information is giving these doomsayers the chilly shoulder.

In March, earlier than the tariffs started, CPI inflation was 2.4%. In April – post-“Liberation Day” – it ran at 2.3%. And proper now, in keeping with the Cleveland Fed’s Nowcasting, real-time knowledge for Might is monitoring at 2.4%. It appears there’s no tariff reinflation to be seen.

How about core CPI inflation? 2.8% in March, 2.8% in April, monitoring for two.8% once more in Might – that’s a textbook definition of secure.

So, what provides? Didn’t Trump simply slap a 125% tariff on Chinese language imports, amongst different issues?

Sure; however he additionally hit the brakes.

Since “Liberation Day,” we’ve had a 90-day tariff pause, exemptions for auto components and electronics, a U.S.-UK commerce deal, and a U.S.-China commerce truce. Collectively, these actions slashed the common efficient U.S. tariff charge from a sky-high 30% to a far-more-manageable 13%.

So, if 30% tariffs didn’t spark reinflation, 13% tariffs positively shouldn’t.

That’s why we’re burying the reinflation narrative. The information is making it clear that tariffs aren’t inflicting reinflation. 

And as long as issues maintain trending within the path they’re going proper now, tariffs received’t trigger any reinflation anytime quickly.