CPI looks good for Trump trades
A surge in inflation would have been a hit to the president’s reputation. Instead, the print was tame and coincided with a bounce in stocks that soared after the election, but have recently broken down.
What’s good for the White House is good for the Trump trades.
That’s about the most sense we can make of the surge in momentum stocks this morning following a slightly softer-than-expected CPI inflation report.
We’ve outlined before that some of the best-performing assets since last November’s presidential election have been companies whose businesses could theoretically benefit from ideological and political pushes of the new administration. They include private prison and immigration contractor GEO and taser and body cam maker Axon Enterprise, both of which are supposed to benefit from Trump administration regulatory and policy changes. Bitcoin’s is another, as it was expected to rise on the use of taxpayer funds to buy crypto in the form of a strategic bitcoin reserve, as well as the loosening of rules on crypto.
Palantir and Tesla, two stocks wildly popular among retail traders whose leadership is seen as either ideologically or financially tied to President Trump, were also major beneficiaries of tailwinds since the election and jumped on the CPI news.
How does this all relate to the softer-than-expected CPI report this morning? I don’t think it does, exactly. And importantly, there’s a broader tide that’s been lifting dozens of momentum stocks, including Tesla and Palantir, over the past couple of days as investors are unwinding some of the momentum unwind that happened over the past three weeks.
But a surge in inflation (which didn’t materialize in February) would have weakened Trump’s political footing by potentially setting the stage for the worst of all economic worlds: stagflation. That would’ve made it more difficult for Trump to deliver whatever benefits — like the president effectively starring in a live Tesla commercial against the backdrop of the White House — traders seem to expect these companies to enjoy under his administration.
In other words, softer inflation news somewhat reduces the risk that the company could lose access to whatever largesse the administration may bestow.
Or it could just provide a decent exit point for those who were looking for one.
