CPI printed slightly hot at .2 on the headline and .3% on the core. Higher core inflation was driven by the shelter component which was up .5 vs .4% last month and airline fares which were up 3.9% vs. -1.6% last month. The flawed shelter component continues to lag real rent inflation, which is down year over year. The shelter component lags due to the designed 6-month lag and the use of lease renewals vs market rate increases. The bond market is down only slightly with the 10-year down ¼ point and December Fed fund futures down by 8bp to an expected rate of 4.5%,
The slightly hot CPI print validates our view that there will be no 50bp cuts this year. We do expect 3 25bp cuts this year and 5 rate cuts in 2025. We forecast that the 10-year will decline to the 3-3.5% range by the end of the year driven by global rate cuts. A 3.25% 10-year implies a 21x multiple on the S&P and validates our 6,000-year-end target on the S&P 500 index. The risk to our target is a democratic sweep, which would imply a 5,500 target assuming a 25% corporate tax rate and an increase of the capital gains tax to 28%. The likely capital gains increase will cause an immediate cascade of selling, mostly in tech stocks, as the likely cut-off date for the increase is 12/31/24.
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