Stocks Heart CPI

Larry Kudlow likes to quote the famous adage, “buy on the cannons, sell on the trumpets.”
But Rothschild had it wrong. It should be “buy on the May CPI, and then on the August CPI…keep buying.” OK, it doesn’t have the same poetic ring, but it’s sure been working for us.
On May 5, despite a sluggish jobs report, the S&P 500 rallied to close at a five-year high of 1.325.76. A few days later, the Fed raised rates to 5% (its second-to-last hike), and the market started its downturn.
On June 13, the S&P 500 made its closing low of 1223.69. That day, gold had its biggest drop in 15 years. At the time I noted that energy, tech and materials made up one-quarter of the index but half of the losses. The next day, the May CPI report showed 0.4% headline and 0.3% core inflation. The market rallied and except for a July retest, it hasn’t looked back.
Today the market stuck its head above 1,324 before closing at 1,319.87. In four months, we’ve almost erased all our losses. Because the recent rally has been skewed to large-cap stocks, broader indexes like the Wilshire 5000 (^DWC) have slightly more room to go.
The Wilshire 5000 Total Return Index (^DWCT) is now just a little over 1% from an all-time high. Think about that for a moment. This means that the overall return of stocks including dividends is close to being positive, even measuring from the March 2000 high. It takes some patience, but the markets work!
This was another good day for our Buy List. Sysco (SYY) and Fiserv (FISV) both hit new highs. Plus, Harley (HOG), SEIC (SEIC), Donaldson (DCI) and FactSet (FDS) aren’t far away from new highs. How about Bed Bath & Beyond (BBBY)? The shares rose for the seventh straight session. Boo-Yah!
Next week we’ll have earnings reports from Bed Bath & Beyond, FactSet and Biomet (BMET).

Posted by on September 15th, 2006 at 4:25 pm


The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.