I’ve always been a “car guy.”
I bought my first supercar when I was 27. Also known as an “exotic” car, these are luxury, high-performance car belong on a race track – but are legal to drive on the street.
This one was a Lotus Esprit Turbo. The one made famous in the James Bond movies.
But that’s not why I bought it. In the Lotus, the frame was built around the transmission tunnel, and you sit “outside” the frame. This allows the car to be lighter and handle better.
It was and is a beautiful car.
I’m also an engineering nut, which is why I owned a Porsche 918 Spyder. It’s an engineering masterpiece.
They call it that because they only made 918 of them. Buying one is like finding a golden amulet.
Here’s a picture of me with it after winning “Best Sounding Sports Car” at the Palm Event at Mar-a-Lago.
These cars aren’t cheap… and neither is the car insurance. In fact, it gets more expensive each and every year.
Wednesday’s Consumer Price Index (CPI) reading showed us that this is still the case. According to the Bureau of Labor Statistics, the cost of motor vehicle insurance was 11.3% year-over-year.
But the picture over the past few years is even worse.
Car insurance is up 33.8% in the past two years – and 53% since 2021!
Needless to say, this can make life difficult for a lot of folks.
However, it wasn’t just car insurance rates that went up in December. So, in today’s Market 360, let’s take a look at what else the CPI revealed – in addition to looking at the Producer Price Index (PPI). We’ll also discuss what the inflation data means for the Federal Reserve and future rate cuts… and how to best position your portfolio as Donald Trump prepares to take office on January 20.
A Look at the Latest Inflation Numbers
Consumer Price Index (CPI)
The December CPI report showed a monthly increase of 0.4%, slightly higher than November’s 0.3% rise and matching economists’ expectations. Year-over-year, CPI increased by 2.9%, an uptick from November’s 2.7% annual gain, also in line with forecasts.
Core CPI, which excludes food and energy, rose by 0.2% in December. That’s a deceleration from the 0.3% increase seen in November, so that’s a step in the right direction. On an annual basis, core prices increased by 3.2%, representing the first time since July that year-over-year core CPI growth slowed.
I should add, however, that sticky shelter inflation continues to be a significant reason why inflation has yet to reach the Fed’s 2% target. The fact is both the rent index and owners’ equivalent rent (OER) rose 0.3% month-over-month, slightly above November’s 0.2% increase. But except for a few areas, I am seeing price declines all over the country, so this should flow into the data soon.
Breaking down the report further:
- Used car prices increased for the third consecutive month, rising 1.2% in December after a 2% gain in November.
- As I mentioned earlier, motor vehicle insurance rose sharply, climbing 11.3% year-over-year.
- Energy prices climbed 2.6% month-over-month, primarily driven by a 4.4% spike in gas prices after a 0.6% increase in November.
- The food index rose 0.3% month-over-month and 2.5% year-over-year. Groceries recorded their highest annual increase since October 2023.
- Within the food index, egg prices stood out, increasing 3.2% in December after an 8.2% spike in November. Egg prices have surged 37% over the past year.
Now, this report was cheered by Wall Street, with the S&P 500 jumping more than 1.8%. The Dow also spiked 1.6%, and the tech-heavy NASDAQ soared 2.4%. The bond market was also happy, with the 10-year Treasury yield dropping to 4.6% in the wake of this report, down from its recent spike to 4.8%.
Producer Price Index (PPI)
Released on Tuesday, the PPI is a key gauge of wholesale inflation – prices producers pay – before they reach the consumer. The latest PPI report showed a modest 0.2% increase in December, falling short of the 0.4% rise economists anticipated. Over the past year, producer prices climbed 3.3%, up from November’s 3% gain but below economists’ expectations of a 3.5% annual increase. This marks the fastest annual growth in nearly two years.
Core PPI, which excludes food, energy and trade margins, was unchanged month-over-month. That was less than the 0.3% increase forecasted by economists and below the 0.2% rise seen in November. On a yearly basis, core prices rose 3.5%, slightly above November’s 3.4% increase but below economists’ expectations of a 3.8% gain.
Breaking the report down a little further:
- Service costs remained flat in December, providing some relief as services have been a significant driver of inflation in recent years. Over the past 12 months, service prices have increased 4%.
- Goods prices moved 0.6% higher in December, primarily due to a spike in energy costs, which have since stabilized.
- Energy prices surged 3.5% month-over-month, driven by a steep 9.7% rise in gasoline prices.
- Food prices eased slightly, slipping 0.1% in December after a sharp jump in November tied to surging egg prices. Wholesale egg prices increased by only 0.5% in December, compared to the dramatic 56% spike seen the previous month due to a bird flu outbreak.
Now, this report was a bit of a mixed bag, to be honest. However, it does provide some key insights, as the PPI is seen as a good indicator of potential future inflation at the consumer level. What’s more, there are a couple of components (such as final demand goods and final demand services) that flow directly into the Personal Consumption Expenditures (PCE) report. We’ll know more on that when the report comes out on January 31.
What This Means – and How We Can Profit From What’s Next…
While inflation appears to be moderating in some areas, the fact is the Fed needs to see sustained cooling in the coming months to justify more rate cuts this year. But rate cuts are still on the table, folks.
As of today, the CME FedWatch Tool indicated just a 3% chance of a rate cut at the Fed’s January meeting. However, the inflation reports have shifted the outlook for rate cuts later in the year. Prior to the release of this data, markets weren’t pricing in more than a 50% chance of a rate cut by June. Now, the odds have risen to roughly 70%.
This tells me that the stranglehold of the bond vigilantes on the market may be starting to break, folks. (I wrote about how the bond vigilantes were holding the market hostage in this article.)
So, I expect inflation to continue cooling enough to satisfy the Fed. More importantly, market rates in the bond world should meander their way down once everyone realizes this talk about the incoming Trump administration’s policies being inflationary simply won’t pan out.
Given all this, there are two things we investors should be keyed in on right now that will make all the difference over the coming weeks: 1) Earnings season and 2) Trump 2.0.
Now, the fourth-quarter earnings season kicked off yesterday with the big banks – and all posted strong results. S&P 500 earnings are expected to grow 11.7%, which would be the highest growth since the fourth quarter of 2021, according to FactSet.
And the good news is things will get even better from here on out. Analysts are calling for earnings growth rates of 11.8% and 11.6% in the first and second quarters of 2025, respectively.
And once Trump takes office on January 20, I predict it will be off to the races.
That’s because Trump will sign a sweeping series of executive orders in his first 100 days that will trigger a new “melt-up” in stocks.
During “Trump’s 100-Day Melt-Up,” we can expect to see policy changes affecting everything from energy to manufacturing to artificial intelligence and more.
That means you would be wise to position yourself NOW. And I’ve identified a handful of picks that I expect to prosper.
Go here for all the details on how to profit from the 100-Day Trump Melt-Up now.
Sincerely,
Louis Navellier
Editor, Market 360
