Here are some stock moves to consider now that inflation has eased up, says Jefferies

Stock Market

After Wednesday’s downside inflation surprise rallied stocks and ushered the Nasdaq COMP,
out of a bear market, some may be wondering if a meltup is around the corner.

Futures are pointing to more gains, as investors are also waking up to more good news on falling US gasoline prices (see below).

But should investors really count on prices continuing to fall from here? For one thing, war continues to rage in Ukraine, fueling Europe’s energy crisis and winter is coming. The Fed is probably also “far from declaring victory over inflation,” say Jefferies strategists.

“Jefferies economic team still believes that there is a persistent component to inflation, stemming from housing and labor shortages, which will not be resolved any time soon and these two forces aim to put a floor under core CPI at around 4%,” notes a team led by Sean Darby, global equity strategist, in a fresh note to clients.

One takeaway from that 8.5% July CPI reading is that “the risk of an overtightening in US financial conditions has been removed. A deep US curve inversion is unlikely now,” said Darby.

In our call of the daywe look at some switching up of stock strategies post data from Darby and the team.

Jefferies’ US financial conditions index has “turned from its extreme,” and they are now taking a long, or bullish stance on an early cyclical basket over defensives, and have also upgraded financials to bullish. They’ve shifted to a bearish stance on healthcare.


Here’s a table showing which stocks have been the best performers after the yield curve has moved from inversion to steepening:

Bloomberg, Jefferies

Darby also thinks the dollar DXY,
has likely peaked, prompting them to go long on a basket of S&P 500 SPX,
dollar beneficiaries, while they continue to prefer gold mining stocks on a view the Fed will find it tough to return to 2% inflation.

This Jefferies chart shows S&P 500 stocks that have been best performers three months after the Dollar Spot Index peaked in 2020.

Bloomberg, Jefferies

“The drop in gasoline prices, long-term rates and CPI is excellent news for the global consumer. We have highlighted that never in history has global consumer confidence numbers been so ubiquitously bad,” said Darby, who is also lifting their weighting in a consumer discretionary basket to bullish.

Read: Stocks rally like it’s ‘mission accomplished’ — but some investors are urging caution as Nasdaq exits bear market

The markets

US stock futures ES00,


are higher, with bond yields steady. The dollar is up slightly and gold GCZ22,
and silver prices SIU22,
are falling. Oil prices BRN00,

are higher after the International Energy Agency said European heatwaves have been boosting demand for the commodity.

The buzz

Disney IS,
shares are climbing after the entertainment giant’s streaming subscriber numbers beat those of Netflix NFLX,
and it is hiking prices of those services by 38%.

Six Flags stock SIX,
is dropping after attendance misses leads to a surprise revenue fall.

On the heels of that inflation tumble, gasoline prices dropped below $4 per gallon for the first time in months.

Cisco CSCO,
said it was breached by a hacker with links to notorious cybercrime groups, but so far no critical systems or customer data has been affected.

Struggling crypto exchange Coinbase COIN,
has confirmed a probe by the Securities and Exchange Commission of its listing and striking programs.

Weekly jobless claims and producer prices are ahead.

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The chart


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Top tickers

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Security names


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