Liz Ann Sonders on CPI Report, Tariffs, and Market Trends

CPI Report and Inflationary Pressures

• 💡 The May CPI report came in comfortably below consensus estimates, partly due to a significant shelter component.
• ⚠️ While the shelter component could offset tariff-related inflation, its weight in the Fed's preferred PCE measure is lower.

China Trade Framework and Tariffs

• 🤝 The recent China trade framework primarily involves continued shipments of rare minerals and magnets, not a comprehensive trade deal.
• 📈 Tariffs on goods from China to the US remain unchanged at an average effective rate of 55%.

Market Performance and Investor Strategy

• 🎯 Investors should focus on the market setup around catalysts rather than anticipating policy changes, which can shift rapidly.
• 📉 A setup with oversold conditions and washed-out sentiment can lead to more dramatic upside from positive catalysts.
• ⚠️ Conversely, nearing all-time highs with returning complacency can make the market more susceptible to negative news.

Bond Market and Yield Volatility

• 📊 The bond market has shown more stability, with the MOVE index (measuring volatility) decreasing.
• ⚡ Calmness in bond yields, especially when not driven by inflation concerns, has supported the equity market.
• ⚠️ Increased volatility in yields driven by inflation, rather than growth, would likely signal weaker stock performance.