U.S. stocks hit a record even as inflation spikes at the fastest pace…

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Good afternoon, Bull Sheeters. Finance reporter Anne Sraders here, filling in for Bernhard for the last time this week with a special evening edition of the newsletter.

It’s all about the i-word today.

Inflation, that is. Investors got another look at the inflation picture in the U.S.—and it isn’t pretty, at least right now. I dig into that a little deeper in today’s essay. But investors didn’t seem too worried about the hot print, with the S&P 500 closing at a record high. Elsewhere, the European Central Bank painted a better picture of the EU economic outlook, but vowed to keep up its bond buying.

Let’s take a look at the market action today.

Markets update

Asia

Asia was mostly higher, with the Hang Seng relatively flat, the Nikkei up 0.3%, and the Shanghai Composite up 0.5%.
Chinese police arrested over 1,100 people suspected of using cryptocurrency to launder money—the latest action taken in China’s crypto crack down.
Alibaba said it’s planning to start working on a self-driving truck with its logistics subsidiary Cainiao. The company’s stock closed 0.1% lower today.

Europe

The European bourses were mixed, with the pan-European Stoxx Europe 600 slightly higher, France’s CAC 40 down over 0.2%, London’s FTSE up 0.1%, and the DAX in Germany 0.06% lower.
The European Central Bank is going to keep buying bonds even after dishing out a cheerier forecast for the EU economy.
The Swiss National Bank and the Bank of France said they would try out cross-border central bank digital currency payments.

U.S.

U.S. Stocks were all in the green, with the S&P 500 up nearly 0.5% to a new high, the tech-heavy Nasdaq up roughly 0.8%, and the Dow 0.06% higher.
Inflation is running hot, as prices rose 0.6% in May from the month prior via the Consumer Price Index, more than expected, at the highest rate in almost 13 years.
Household wealth shot up to a record $137 trillion in the first quarter, boosted by stimulus and gains in the stock market.
Video game titan EA‘s stock closed moderately lower following a report that hackers had stolen gaming source code from the company.

Elsewhere

Gold is up, at around $1,900/ounce.
The dollar is down.
Crude is up, with Brent trading around $72/barrel.
Bitcoin had a volatile day, trading around $36,400 as of 5:15 p.m. ET. Ethereum and Dogecoin were both lower.

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Let’s talk about inflation, baby…

The Street’s big to-do was inflation today, which rose in May at the fastest year-over-year pace since 2008. But the markets weren’t too concerned, as the S&P 500 closed at a new all-time high. (That new high took the index a surprisingly long time to hit, with the benchmark having flirted with the record for days.)

But the headline numbers are pretty big, showing prices rose 5% in May year-over-year and 0.6% from April, as prices increase for a whole host of goods, from cars to grocery store items.

To be sure, spiking inflation shouldn’t come as much of a surprise, especially given all the pent-up demand and tight supply coming out of the pandemic.

Let’s see what the experts are saying.

Jason Pride, CIO of private wealth at Glenmede, says concerns that “higher inflation will persist further into the future … should eventually fade as a significant degree of this inflation may prove transitory as nearly half of the above-average spike in inflation comes from the base effects of last year’s weakened economy and even supply shortages should prove transitory as companies increase productivity and begin to meet pent-up demand,” he wrote Thursday.

Meanwhile Cliff Hodge, CIO for Cornerstone Wealth, thinks the “hot print on inflation has to be getting the Fed’s attention,” as he wrote in a note. “It will still likely be chalked up to transitory base effects, but the CPI print alongside recent releases on higher wages will only turn up the volume on taper talk.”

In terms of the market moves, Edward Moya at Oanda argues “investors realized the punchbowl of stimulus is not going away anytime soon.” He pointed out that “the inflation playbook heading into the summer is holding up nicely,” writing that “Wall Street saw the writing on the wall that pricing pressures were going to surge.”

The big question is what the Fed does now, if anything. Rick Rieder from BlackRock offers a thought: “Now, on the back of two blockbuster inflation reports—in April and May—that hint at overheating, the question of what constitutes that healthy middle ground, and whether it needs to be above 2% or not (Fed policymakers tend to believe that it does), has never been more important,” he wrote. Rieder’s solution? “We think the Fed would be better served in fulfilling its mandate by at least beginning to discuss the tapering of asset purchases and attempting to avoid the destabilizing influences that can result from excessive use of extreme policy accommodation.”

But what’s the bottom line for your portfolio?

Goldman Sachs recently laid out the “sector winners and losers to be found in periods of rising prices,” as my colleague Bernhard wrote earlier this week. “In general, health care, energy, real estate, and consumer staples outperform. The laggards, meanwhile, are materials and technology stocks,” he wrote.

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Buzzworthy

Twitter had plenty to say about the CPI print. FinTwit never disappoints.

That’s all for now. Bernhard is back tomorrow, so you’ll be getting Bull Sheet in your inbox at the normal time. Until next time!

***

Anne Sraders
@AnneSraders
[email protected]

As always, you can write to [email protected] or reply to this email with suggestions and feedback.

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