Sentiment Is Euphoric But The CPI May Be Setting Up A Powell Smackdown, Is ORCL A Precedent For ADBE?

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The stock market is starting to levitate and bears are nowhere to be found. The S&P is trading at its high for the year and the VIX is at a post-COVID low around 12. But the in line CPI may be setting up Powell to reiterate his stance that the war on inflation is not over yet and rates will stay “higher for longer”.

Headline CPI increased 0.1% month over month and 3.1% year over year in November. Core CPI increased 0.3% month over month and 4.0% year over year. While things continue to trend in the right direction, this was an in line report that is not likely to change the Fed’s stance, according to Schwab Chief Fixed Income Strategist Kathy Jones. In other words, the market may be getting ahead of itself and Powell may well take the opportunity to say so.

Taking a broader view, Charley Grant wrote an excellent front page article for the WSJ yesterday (Tuesday) about the “everything rally” [SUBSCRIPTION REQUIRED] that has taken place over the last 6 weeks or so as investors have concluded that the Fed has won its war against inflation without causing a recession. In other words, current market prices are predicated on a “soft landing” which I have my doubts about.

Oracle (ORCL) reported disappointing sales growth on Monday afternoon and its stock has been taken to the woodshed in the aftermath. ORCL’s cloud growth story remains intact IMO but the reaction shows that the stock had run too far for the moment. I wonder if the same thing might not be in store for Adobe (ADBE) when it reports earnings after the close today (Wednesday). ADBE’s guidance calls for only 10.5% revenue growth compared to a year ago and the stock is trading at nearly 40x current year earnings. I think the stock could come in a bit if the report isn’t stellar.

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