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S&P Ignores CPI and Finally Hits a New Record

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Talk about a different reaction to a higher-than-expected CPI report! Instead of plunging by more than 2% like it did last month, this time the S&P managed to finally set that long-awaited new record despite concerns of higher inflation.

Consumer prices jumped 5% in May year over year, which was the highest in almost 30 years and above the previous month’s 4.2%. The print was also ahead of expectations at 4.7%. So why did the market react so much differently than last time?

As Jeremy Mullin said in today’s Counterstrike: “The number was slightly above expectations, something I would call warm, not hot.”

In other words, last month’s number was 0.7% above expectations, while this month’s was less than half of that at 0.3%. Also, investors may finally be coming around to the Fed’s statements that such inflation will be short-lived.

“May's CPI figure blew past April's and exceeded economist expectations. Guess what? The market didn't care,” said Dan Laboe in Headline Trader.

“The significant inflationary data we received this morning was quickly shrugged off. The markets are beginning to believe in the ostensible short-term nature of these pricing pressures. This may be the Fed trusting mindset we've been waiting for to drive the US public equity market another leg higher.”

The S&P rose 0.47% to a new record of 4239.18, which is its first all-time high since May 7.

However, the NASDAQ was once again the best performer as investors may rediscover the underperforming tech sector if they’re not going to obsess over inflation. The index was up 0.78% (or about 108 points) to 14020.33, which is its first close above 14K since late April. Finally, the Dow’s three-day losing streak is over with an advance of 0.06% (or around 19 points) to 34,466.24.

As you’d expect, the S&P and NASDAQ go into Friday’s session with gains for the week, but the Dow is off by about 0.8% after its recent weakness.

Meanwhile, the encouraging trend in jobless claims continued on Thursday with a reading of only 376,000, which marks the second straight week below 400K and the sixth consecutive week with a decline. Needless to say, it’s also a new pandemic low.

Today's Portfolio Highlights:

Counterstrike: Is the hot housing market beginning to cool off a bit? Who cares! The demand for housing isn’t going anywhere, so pullbacks could be a great opportunity. Take Beazer Homes (BZH) as an example. This builder of single-family homes is off more than 20% since beating the Zacks Consensus Estimate by 56% back in April. Jeremy sees an opportunity here and added BZH on Thursday with a small 4% allocation. The plan is to build a position above $20 and add on any pullbacks as long as the 200-day at $17.30 holds. Read the full write-up for a lot more on this new addition.

Home Run Investor: As promised, Brian has a new addition for Thursday. He picked up Ooma (OOMA), which provides communications solutions and other connected services to small business, home and mobile users. The company has a fantastic earnings history with four beats in the last four quarters and an average surprise of 65% over that time. Furthermore, slow and steady advances in earnings estimates have turned OOMA into a Zacks Rank #2 (Buy). Read the full write-up for more on this new pick.

Insider Trader: The working-from-home trend isn’t going to just end with the pandemic, which means a provider of cloud communications services like 8x8 (EGHT) will continue to have solid growth opportunities. This potential was on full display in its fiscal fourth quarter report, when EPS and cash flow went positive a quarter earlier than expected while the company continued to add subscribers. However, shares are down 11% in the last month and 25% so far this year. But the new CEO came along with a “confidence buy” of 43,000 shares to show that he “believes” in the company. Tracey likes such buys so she added EGHT on Thursday. But first the editor sold United Bankshares (UBSI) for 16.3% in less than six months as banks are a bit riskier right now. She’ll put those proceeds into EGHT, bringing the allocation to around 8%. Read the full write-up for more on today’s action.

All the Best,
Jim Giaquinto

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