Inflation Is Cooling. Here’s What Will Decide the Market’s Next Big Winners

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In October 1973, war in the Middle East triggered an energy crisis that Americans could see with their own eyes.

After Arab oil producers imposed an embargo on the United States, gasoline supplies tightened and prices soared. Drivers waited in lines that stretched around the block, wondering whether the station would run dry before they reached the pump.

Inflation was no longer an abstract number buried in a government report.

It was posted on gas station signs. It was eating into family budgets. And it was sitting in a line of cars that barely moved.

More than 50 years later, it looked like history might repeat itself.

War erupted in the Middle East. Oil prices surged. Gas prices followed. And just as inflation had started to cool, fears of another energy shock came roaring back.

Then the story changed.

Oil prices reversed course. By late June, crude had fallen back near the levels where it traded before the fighting began. Gas prices followed, though drivers were still paying more than they had before the conflict.

That reversal showed up clearly in this week’s inflation reports.

So, does the latest data mean the inflation threat has truly passed, or has it merely changed shape?

In today’s Market 360, I’ll explain what the latest Consumer Price Index (CPI) and Producer Price Index (PPI) reports reveal about inflation, why oil and gasoline prices reversed course and why quickly changing conditions like these can make it so difficult to know when to buy, sell or simply stand pat.

Then, I’ll show you how my Precursor Intelligence system helps me track the shifts that matter most and identify the stocks that could lead the market’s next move.

The CPI Delivers Good News

Let’s start with the CPI, which offered some encouraging news.

Consumer prices fell 0.4% in June, marking the first monthly decline since 2020. Economists had expected a decline of just 0.2%.

On an annual basis, that brought the rate down to 3.5%, down from 4.2% in May – and below a forecasted 3.8%.

Core CPI, which excludes food and energy, was unchanged. Economists had expected a 0.2% increase. That brought the annual rate to 2.6%, down from 2.9% previously.

A big reason for the drop was gasoline prices, which fell 9.7% as oil prices retreated. Food prices rose a modest 0.2%.

But the most important number to me was owners’ equivalent rent.

This measure estimates how much homeowners would pay to rent their own homes. It rose just 0.2% in June after running at higher levels in previous months.

That matters because housing has been one of the most stubborn sources of inflation. Any sign that rent pressures are easing is good news for consumers, interest rates and the Federal Reserve.

In fact, I think this report effectively took another Fed rate hike off the table.

Whatever the talking heads on television may say, inflation is coming in below expectations. Market rates have also been moving lower, which is another positive for stocks.

And the following day’s Producer Price Index gave us even more reason for optimism.

Good News Continues With the PPI

Producer prices fell 0.3% in June, beating economists’ expectations for no change and marking the first monthly decline since last August.

On an annual basis, prices slowed to 5.5%, down from 6.0% in May. Just as encouraging were the report’s underlying details.

Energy prices fell 6.4%, and food prices slipped 0.6% on a monthly basis. Core PPI, which excludes food and energy, rose a modest 0.2%.

Energy Remains the Wild Card

Now, it’s important to remember that May’s Producer Price Index told a very different story.

Wholesale prices jumped 1.1% that month, largely because energy prices surged after the conflict with Iran began.

But as you can see in the chart below, crude oil later gave back much of that initial spike. Countries found alternative ways to move energy supplies around the Strait of Hormuz, fears of a prolonged disruption eased and oil prices retreated.

That reversal helped pull both consumer and wholesale inflation lower in June.

But I would not declare victory just yet.

West Texas Intermediate crude traded near $65 before the conflict. It briefly fell back below $70, but prices have since started moving higher again. And I still expect energy prices to remain firm through Labor Day.

So, energy remains the wild card.

For now, though, the latest numbers are encouraging. Inflation came in below expectations at both the consumer and wholesale levels. That has taken the threat of another Federal Reserve rate hike off the table, while market rates have started meandering lower.

That is good news for stocks.

But the speed of the reversal also carries an important lesson for investors.

The Lesson Behind the Numbers

The speed of that reversal carries an important lesson for investors.

Economic reports tell us what has already happened. The market is always trying to figure out what happens next. May’s PPI reflected the initial surge in energy prices. June’s CPI and PPI captured the retreat. And as the crude-oil chart above shows, prices have already started moving again.

That is why I do not build my portfolio around the latest headlines. On any given day, markets can swing on news about interest rates, geopolitics or countless other developments. But once the dust settles, it’s earnings and fundamentals that ultimately rule the roost.

The stocks with the strongest earnings, sales growth and guidance are the ones most likely to move higher over time.

The hard part is identifying those companies before Wall Street catches on.

That’s exactly why I developed my Precursor Intelligence (P.I.) system.

It helps me track shifts in institutional buying and combine those signals with the factors that matter most, including strong sales growth, accelerating earnings and positive guidance.

When those signals line up, that’s when I really start paying attention.

It’s a disciplined approach I use when selecting stocks for my Accelerated Profits  portfolio.

And the results speak for themselves. Here are 10 of the biggest winners currently on my Buy List:

These gains did not come from chasing headlines or reacting to every market swing. They came from identifying fundamentally superior companies with strong institutional support, then giving their earnings time to do the heavy lifting.

These are exactly the kinds of companies I want to own as earnings season unfolds – and you should, too.

In my latest presentation, I’ll show you how my P.I. system helps me identify those opportunities before the broader market catches on.

Click here to watch it now.

Sincerely,

Louis Navellier

Editor, Market 360