CPI Comes In Cool: Why It Could Revive These 3 Rate-Sensitive Stocks

Summary

Investors breathed a sigh of relief on Tuesday, July 14, when the Consumer Price Index (CPI) came in below consensus, signaling that inflation slowed month over month in June. The index declined 0.4% between May and June, mainly due to falling energy prices. The annual rate of 3.5%, while still well above target, also came in below the 3.8% consensus. But the biggest relief came to rate-sensitive sectors like fintechs, Real Estate Investment Trusts (REITs), and entry-level homebuilders, many of which have been beaten down by sticky inflation, high rates, and weary consumers. While one print doesn’t equate to a trend, June’s number bodes well for this group, especially the three stocks we’ll discuss below. Get SoFi Technologies alerts:Sign UpThe Hike Scare Just Lost a Few TeethInflation had been creeping higher in recent months, and Federal Reserve governors like Christopher Waller had been considering voting for rate hikes as early as this month when the Federal Open Market Committee (FOMC) meets on July 29. According to CME Group’s FedWatch tool, the odds of a July rate hike reached as high as 42% on July 13, but dropped to just 16.6% the day after the cool CPI release. The odds of a September rate hike are still nearly 60% (and cuts still appear completely off the table), but a three-month period of relief could be meaningful for the sectors we mentioned earlier. The 10-year Treasury yield dropped sharply after the CPI release, a boost for homebuilders, since 30-year fixed mortgage rates most closely track the 10-year Treasury yield. Fintechs also suffer when mortgage rates are high, as loan demand weakens and credit risk increases. They’re also frequently considered growth stocks with earnings potential, not necessarily current profits. And REITs are both a bond proxy and a real estate proxy, benefiting from lower Treasury yields and lower borrowing costs to acquire property. While June’s report is the largest one-month CPI decline since April 2020, it's importan...