Just as we were beginning to get good news on the inflation front, prospects of a pause from higher rates are dimming as we speak. Last week, we began to get some good news about inflation. The CPI's core inflation rate came in at an unbelievable of 0.0%. The month before the core rate was up 0.4%. On the surface, it looked as though inflationary pressures were non-existant. Of course, you and I knew better.
Today, we are seeing an entirely different ballgame. Real Estate, as measured by the homebuilding stocks are rallying sharply as the benchmark 10-year note (+18/32) down to yield 4.05%. Rates this low will not cool inflation in the housing sector, but only add fuel to the flames. In addition, just as investors thought oil prices were down for the count, oil prices surged as crude oil rose 51 cents to $49.16 in New York.
The rally we expected in the heavily shorted technology sector is creating optimism among investors. I hate to rain on their parade, but I think the techs will cool off once traders cover their shorts.
In short, last week we had hopes that the Fed would temporarily halt its rate hikes. In just a few days, those hopes are becoming dimmer. Continue to focus on defensive issues.
