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The consumer price index for May came in flat from the month ago and below expectations following a 0.3% in April. The 1.3% increase in GDP in Q1 combined with this moderation in CPI, would ideally imply that the Fed is ready to cut rates, especially considering its counterparts around the world are already starting to do so. The Fed instead appears to be content sticking to its wait and watch approach.
One of the reasons for this measured approach is the strength in job numbers, where we saw payrolls increase by a better than expected 272,000 in May. The engines driving this economy, now that the consumer has cooled a little, include new housing construction, infrastructure spending by the government, and especially the booms we are seeing in energy and the technology industry. The market keeps achieving new highs on the backs of these booms and we have benefited this year from our exposure to the energy sector but that reversed in June. Energy stocks took a step back even as AI related stocks hit new highs. For this month, our focus is a consumer discretionary company and a merger arbitrage situation.