Investors just got an inflation wakeup call. Will they answer?
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That contrast has led investors to wonder whether the Federal Reserve’s current higher-for-longer policy isn’t such a bad idea, after all.
A shifting of the plates: Over the past year, investors have been vocal in their desire for the Federal Reserve to cut interest rates, while some central bank officials have been equally vocal about keeping them higher for longer.
The friction between the two groups occasionally heats up, erupting in bouts of market volatility — large upswings after a promising piece of economic data or downswings following a Fed official’s attempt to tamp down Wall Street’s interest rate expectations.
But that disconnect appears to be fading as inflation rates in the US continue to ease.
Looking abroad: Wall Street has been scared straight by its neighbors to the north and the far west.
Prices in Canada unexpectedly rose in May, according to data released shortly after the Bank of Canada cut interest rates for the first time in four years.
The next day, inflation in Australia jumped to its highest level in 2024, adding to the fear. In Europe, the eurozone consumer price index moved higher in May, but eased a shade in June — according to data out Tuesday — although core inflation was flat at 2.9%.
The US also had a recent scare as inflation rates ticked higher.
“We believe the loosening of financial conditions in late 2023 may have contributed to the temporary resurgence in price pressures,” said Brent Schutte, chief investment officer at Northwestern Mutual Wealth Management, in a note Monday.
But after a year of the Fed holding interest rates steady at a 23-year high, inflation rates in the United States are once again declining.
The latest Personal Consumption Expenditures index reading along with the most recent Consumer Price Index report released earlier in June both “suggest that the uptick in prices seen earlier in the year has stalled, and the disinflationary process may have restarted,” said Schutte.
High inflation readings around the globe are concerninginvestors, José Torres, senior economist at Interactive Brokers, told CNN. That worry has made them more accepting of the Fed keeping rates higher, at least for now.
The market outlook for future Fed rate cuts is stabilizing around just one rate cut this year, said Torres. Investors are getting on board with the higher-for-longer outlook.
A warning: The Bank for International Settlements, the umbrella body for central banks around the globe, has even taken notice. They warned central banks in their annual report released Sunday to set a “high bar for policy easing,” noting that there’s a high risk looser rates could spur price increases.
“A premature easing could reignite inflationary pressures and force a costly policy reversal — all the costlier because credibility would be undermined,” the BIS said.
Coming up: Investors are looking toward nonfarm payrolls for June, due out Friday morning. Those numbers could provide them with more context about the state of the economy and clues about what the Federal Reserve may do next.
Chewy shares fall after surging on revelation of ‘Roaring Kitty’ meme trader’s 6.6% stake
Shares of online pet products retailer Chewy went on a wild ride Monday after Keith Gill, the influential meme stock trader also known as ”Roaring Kitty,” revealed a large stake in the company, reports my CNN colleague Krystal Hur.
On Monday, Gill said in a Securities and Exchange filing that he purchased about 9 million Chewy shares (CHWY), amounting to a 6.6% stake in the company.
Chewy shares closed 6.6%lower on Monday after jumping as much as 10% earlier in the session.
Chewy shares began gaining last Thursday after Gill, the individual investor who helped spark the frenzied trading around GameStop shares three years ago, posted a photo of a cartoon dog on his X account. The cartoon’s blue background appeared to be the same blue as Chewy’s logo. Shares of the company surged more than 34% that day at its highs before closing 0.3% lower.
Meme stocks more typically move on social media sentiment than fundamentals, often posting huge swings based on the buying and selling of influential traders like Gill.
Ryan Cohen, the founder of Chewy, is the chief executive of GameStop, the embattled video game retailer Gill is known for championing.
Redbox owner Chicken Soup for the Soul files for bankruptcy
The parent company of Redbox, those distinctive, red-colored kiosks at grocery stores that sell or rent DVDs, has filed for bankruptcy after enduring months of financial struggle, reports my colleague Jordan Valinsky.
Chicken Soup for the Soul Entertainment (CSSE) revealed in a filing that it has nearly $1 billion in debt and owes millions of dollars to several entertainment companies including the BBC and Sony Pictures, plus to retailers ranging from Walmart to Walgreens.
Filings show that the company took on about $325 million in debt following its purchase of Redbox in 2022 from private equity giant Apollo Global Management. The plan was to make it into an entertainment conglomerate, combining the DVD rental business with its free streaming services, like Crackle, the entertainment platform once owned by Sony.
Those plans didn’t pan out, hindered by dual Hollywood strikes that limited production of fresh content and the decline of people renting physical DVDs that even forced rival Netflix to quit that part of its business last year.
CSSE declined to comment.
In light of the shifting interest rate landscape, some investors are now seeing value in the Federal Reserve's higher-for-longer policy, viewing it as a potential tool to manage inflation. This shift in perception is particularly noticeable in the context of business investments.
In the world of investing, the influence of individual traders, such as Keith Gill, commonly known as 'Roaring Kitty,' can significantly impact the stock market, as evidenced by the fluctuation of Chewy shares following his disclosure of a substantial stake in the company.
