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Cooler-Than-Expected CPI Fails to Heat Up the Market

Even a cooler-than-expected CPI report couldn’t snap the market out of its September slide, as the major indices resumed this month’s downward trajectory on Tuesday after a mostly positive start to the week.

The Dow plunged 0.84% (or about 293 points) to 34,576.46, while the S&P slipped 0.61% to 4441.28. Not only did these indices fail to add onto Monday’s advances, but they lost more than was gained yesterday. So we’re already in the red for this week with the Dow and NASDAQ each lower for the sixth time in the last seven sessions.

The NASDAQ isn’t much better. It declined 0.46% (or about 70 points) to 15,035.42, which marks its fifth straight negative close. Apple’s (AAPL) iPhone 13 event, which also introduced new iPads and new Apple Watch series, didn’t provide much of a boost for the company. Shares dipped nearly 1% today.

Investors have been eagerly awaiting today’s CPI report. And you know what? It ended up being slightly better than expected. VERY slightly.

Consumer prices rose 5.3% in August year over year, which was in-line with expectations and a tad better than July’s 5.4% rise. It was up 0.3% month on month, which was also more moderate than July’s 0.5% advance over June. Core CPI, which excludes energy and food costs, came in cooler than expected as well.

These readings are still extremely high, but you’d think that a market so concerned with rising inflation would react more favorably to a lighter-than-feared CPI report. Even a 0.1% improvement could be seen as supporting the Fed’s forecast that such rising prices are transitory.

Unfortunately, the report doesn’t shed any light on the market’s main problem at the moment, which is the delta variant and its impact on the economic recovery. Next week’s Fed meeting is growing more important every day.

Today's Portfolio Highlights:

Stocks Under $10: The staffing business is booming right now, as evidenced by the space being in the top 10% of the Zacks Industry Rank. This portfolio’s best performer at the moment is easily the staffing firm Cross Country Health (CCRN), which has soared nearly 150% since being added last November. Given such success, Brian decided to pick up another name from this area on Tuesday by buying RCM Technologies (RCMT). This Zacks Rank #2 (Buy) topped expectations three times and matched once in the past four quarters. The most recent beat was more than 266%. Full year earnings and revenue growth is seen at nearly 144% and 22.5%, respectively, with more growth expected next year. In addition to picking up RCMT, the portfolio also sold Ammo (POWW) and Babcock (BW) because these names were “beyond the point of no return”. Read the full write-up for more on all of today’s action. In other news, Diana Shipping (DSX) made the top movers scoreboard yet again by advancing 3.7% on this down day and remains one of the best performers over the past 30 days by surging 42.3%.      

Zacks Short Sell List: Two positions were swapped in this week's adjustment. The portfolio short-covered Amazon (AMZN, +1.7%) and Intuit (INTU), and then replaced those names by adding AppLovin Corp. (APP) and Certara (CERT). Learn more about this emotion-free portfolio that takes advantage of falling and volatile markets by reading the Short Sell List Trader Guide. By the way, this portfolio had the top performer on Tuesday as the short in Las Vegas Sands (LVS) advanced nearly 10%. The short in StoneCo (STNE) also made the Top 5 by climbing 3.7% in this rough session.

Options Trader: "After hitting new all-time highs just two weeks ago, stocks have pulled back a bit as the market tries to consolidate recent gains.

"It will continue to look for direction while it sorts thru concerns over inflation, supply and worker shortages, and the effects the delta variant will have on growth moving forward.

"Traders will also be watching developments on the infrastructure bill, the budget framework bill, and the taxes to go along with it. We’ve already heard some of the proposals. Taxes, of course, are growth suppressors, while stimulus is a growth driver. But we’ll have to see the details.

"In the meantime, the economy continues to expand. And at an impressive pace. Maybe less than earlier forecast, but still very impressive."
-- Kevin Matras

Have a Good Evening,
Jim Giaquinto

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