Don鈥檛 Let This Week鈥檚 Inflation Data Scare You Out of Stocks

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Julia Child became famous because she made people feel brave in the kitchen.

Before she came along, French cooking seemed intimidating to a lot of Americans. It felt fancy. It felt complicated. It felt like something best left to trained chefs.

Julia changed that.

On her cooking shows, she showed people that good cooking was not about fear. It was about understanding the ingredients, following the process and knowing when to adjust.

And folks, that is a pretty good way to think about this market.

The ingredients are strong. Artificial intelligence is still one of the biggest growth stories I have seen in my career. Corporate earnings remain healthy. Fundamentally superior stocks continue to lead.

But there are some tricky ingredients in the mix, too.

Inflation remains sticky in certain areas. Energy prices are moving around. Treasury yields can change the market’s mood in a hurry. And the Federal Reserve is still looking for enough evidence to cut interest rates without reigniting inflation.

That is why this week’s inflation reports mattered so much.

On Wednesday, we got the Consumer Price Index (CPI) and then the Producer Price Index (PPI) was released this morning. Together, these two reports gave us a better look at what is really happening beneath the surface of the economy.

So, in today’s Market 360, we’ll break down what these reports tell us and what they mean for the Federal Reserve. I’ll also share why this is exactly the kind of market where investors need to understand the ingredients, follow the data and have a more tactical way to know when to be aggressive – and when to be cautious.

The Consumer Inflation Picture

The CPI gave Wall Street plenty to chew on.

The Consumer Price Index showed that prices rose 0.5% in May and 4.2% over the past 12 months. That was the hottest annual reading since 2023.

But it is important to understand where the heat came from: energy.

Energy prices rose 3.9% in May, and that pushed the headline number higher.

When you strip out food and energy, the report looked much better. Core CPI rose just 0.2% in May, which was lower than expected. It’s now running at a 2.9% annual pace, which was right in line with estimates.

That is important, folks.

Core CPI tells us whether inflation pressures are spreading through the broader economy. And based on this report, they are not running away.

The other encouraging detail was shelter. Owners’ equivalent rent, which measures what homeowners would pay if they rented their own homes, rose 0.3% in May. That is down from 0.6% the month before.

In other words, rental costs are starting to dissipate. That is a big deal because shelter has been one of the stickiest parts of inflation for a long time.

Bottom line: The headline CPI number looked hot because of energy. But core inflation was better than expected, shelter cooled and Treasury yields moved lower after the report.

As long as the Treasury market likes the report, we should, too.

The Wholesale Inflation Picture

Then came the Producer Price Index – and energy was the story here, too.

The PPI rose 1.1% in May and is now up 6.5% over the past 12 months. That was hotter than economists expected – and the fastest annual pace since November 2022.

Looking deeper, final demand goods prices jumped 2.8% in May. Final demand services rose a much more modest 0.3%.

Energy explains a lot of that gap.

Final demand energy prices jumped 10.7% in May. Gasoline prices surged 23.4%. Diesel fuel, jet fuel, industrial chemicals, plastic resins and natural gas liquids also moved higher.

So, why does this matter?

Well, the PPI tells us what producers are paying. And when producers pay more for fuel, transportation and raw materials, those costs can ripple through the economy.

That is why the PPI is considered a leading indicator of consumer inflation.

Now, I do not want to overreact to one energy-driven report. Energy prices can move around a lot from month to month.

But this report does tell us something important: Higher energy costs are still working their way through the wholesale pipeline.

That does not erase the good news we saw in core CPI. But it does mean the Fed still has another tricky ingredient to consider.

The Rate-Cut Question

The CPI report was better than expected where it mattered most. Under the hood, the report showed inflation pressures are easing in some of the areas the Fed watches most closely, particularly shelter costs.

That tells me inflation pressures are not spreading through the broader consumer economy.

But wholesale inflation remains an important part of the picture. And if energy costs keep rising, companies may eventually try to pass them along to consumers.

That is what the Fed has to watch.

So, I still believe rate cuts can happen later this year. But after this week’s reports, the Fed will likely want to see more evidence that energy-driven inflation is cooling before it moves.

That may create some short-term volatility. But it does not change the bigger picture.

The earnings environment remains very strong. FactSet now expects S&P 500 earnings to grow 21.7% in the second quarter, up from 18.7% at the start of the quarter. That tells me analysts are still revising estimates higher, and fundamentally superior stocks should continue to lead.

But this is still a market where one inflation report or one move in Treasury yields can change the mood in a hurry.

That’s why having the right ingredients is only part of the recipe.

The Right Recipe for This Market

The other part is knowing when to adjust.

That was Julia Child’s real lesson. Good cooking was not about pretending nothing could go wrong. It was about understanding the process well enough to make the right adjustment at the right time.

That same lesson applies to investors right now.

The ingredients are there. But this is not a market where investors should simply close their eyes and hope everything comes together.

Inflation reports can surprise. Treasury yields can move. Fed expectations can shift.

And when markets are this sensitive to new information, investors need to stay flexible. You need to know when to press – and when to pull back.

That’s why I sat down with TradeSmith CEO Keith Kaplan yesterday morning.

During our , we discussed why today’s market reminds me of the late 1990s, why I believe the AI boom still has much further to run and how a new AI-powered approach could help investors become more tactical as volatility picks up this summer.

If you missed it, .

I strongly encourage you to watch it as soon as you can.

Because in a market like this, you do not want to guess. You want to follow the data.

Sincerely,