Following the opening bell, all four major stock market indexes are in the red following the April Producer Price Index (PPI) report, a renewed plunge in PacWest (PACW) shares, and worries over the debt ceiling.
Let's break it all down and add some perspective as we do so.
The April PPI came in even softer than the consensus forecast was aiming for with the headline figure coming in at 2.3% year over year and the core reading at 3.2%, down from 2.7% and 3.4% in March. Clearly a positive, especially as core PPI has steadily improved over the last two years compared to +8.6% year over year in May 2022.
However, the Fed's focus is on the core Consumer Price Index (CPI) and as we shared earlier this week, the April figure for that came in at 5.5% year over year, keeping the tight range of 5.5%-5.7% so far this year intact. Bottom line on this is after some initial progress in 2022, core CPI has stalled.
As we see it, the continued progress in the PPI data adds to the likelihood the Fed will take a policy pause at its upcoming June meeting, especially given we have yet to get a full picture of post bank failure credit tightening. Even so, it still boggles our minds that folks still see rate cuts ahead in the back half of this year following that April core CPI print.
In terms of the PacWest, the renewed drop in the shares follows comments from the bank that deposit outflows resumed in the first week of May after it shared it was exploring strategic options. In the current environment, we aren't surprised the added uncertainty of PacWest's fate led to additional outflows but that doesn't mean we are still in the thick of the recent banking crisis.
Bank of America
Stepping back, those outflows are going somewhere and more than likely bulge banks like our Action Alerts PLUS holding Bank of America (BAC) will continue to be the beneficiaries.
With BAC shares trading down and support near $26.50, we're going to wade another toe into the water, a move that should help inch our $28.38 cost basis lower. It will also add to our stream of dividend income given the forward annual dividend of $0.88 per share.
After you receive this Alert, we will buy 750 shares of Bank of America at or near $27.25. Following the trade, BAC shares will account for roughly 2.0% of the portfolio.
(Please note that we are looking to execute these trades at or near the share price mentioned above. Once the trade is completed, subscribers can see the trade's executed price here. Be sure to toggle the chart to sort by Purchase Date.)