PCE numbers make room for the Fed to make its first fabled cut… Inflation's not as high as it seems… And rates are even higher… The S&P 500 has gone nowhere in 3 months… A quick earnings trade on a retailer turnaround… How Elon Musk could take revenge on Joe Biden this election season… By Michael Salvatore, Editor, TradeSmith Daily The personal consumption expenditures (PCE) report last Friday hid some key details beneath the headline numbers, which are sure to nudge the Fed toward making a move before the year is out.
Every measure of inflation over the last month and year came right in line with expectations. Overall, expenditures rose 2.7% over the last year and 0.3% over the last month. Stripping out food and energy, the monthly number was a little lower (0.2%) and the yearly number a little higher (2.8%).
Inflation has been painful and it's causing Americans to feel left behind, as we covered Saturday. The worst of it, in 2022, provided for several years of normal inflation inside of just one.
That's reflected in the consumer spending numbers, which were down 0.1% over the past month when economists expected a 0.1% rise. Consumers are dialing back their spending in an attempt to keep their heads above water – and that's probably why they feel the economy is so much worse for wear than the data shows.
Now, though, we're past the worst of inflation. And these days, the advances we're seeing are actually right in line with the historical average. ❖ Jason Bodner has been pointing this out to his readers for months... According to his analysis, long-term inflation numbers are much higher than the Fed's infamous 2% target... and the current level of interest rates is abnormally high given the data we're seeing. Here's Jason: The current inflation rate [referring to the Consumer Price Index] – 3.5% – is below the 64-year average of 3.77%. The S&P 500 is more than 8 times higher in that time, when inflation averaged more than it does right now.
Multiple data points support lower rates, from inflation's strong downtrend to current rates actually above the 64-year average to the unusually big spread between rates and inflation. Interest rates (5.3%) are more than 50% higher than inflation (3.5%). Historically, that spread is just 1.03%, so it will narrow.
While the Fed normally likes to get us into the ballpark of 2% inflation – Jason found that CPI tends to run more like 3.8%.
Then, when I took the liberty of running some numbers myself, I found that the PCE rises at a pace of 3.4% per year going back to 1930. That's based on the average annual change in the Real (inflation-adjusted) PCE from the Federal Reserve's database.
So we've also reached below-trend inflation in the PCE numbers, just as Jason found in the CPI numbers. And that sets the stage for the Fed's first rate cut later this year.
At this point, I'd be surprised if the Fed stuck to its forecast of three key rate cuts in 2024. But the CME's FedWatch tool does now show the first consensus estimate for rates to fall by 25 basis points in November: 
The probability of rates holding firm at the November meeting is down to 34%, from over 42% just a month ago.
Of course, these probabilities change constantly with every economic data point released. But last week's data suggests the hot first-quarter inflation numbers were a bump upward in the downward trend.
Our advice at TradeSmith has been consistent through it all...
If you're a buy-and-hold investor, continue seeking out the high-quality, capital-efficient businesses that are best positioned to beat the stock market. TradeSmith's Business Quality Score and Jason Bodner's Quantum Score are great ways to find them.
If you're a trader, use multiple confirming data points like seasonality, overbought and oversold conditions, and forecasting tools like TradeSmith's Predictive Alpha before you place a trade.
And if you're an options seller, keep the odds on your side with the Probability of Profit algorithm, part of our Options360 software. TradeSmith CEO Keith Kaplan recently showed off the latest version of this algorithm in a limited-time strategy session. If you missed it, check it out here before it comes down tomorrow. ❖ All of these strategies are incredibly important right now... Because, as you might've noticed, the S&P 500 has gone nowhere for the past three months.
Hard as it might be to believe, it's just been a whole lot of noise, as you can see in this chart of the SPDR S&P 500 ETF (SPY)... 
Coming off the local bottom from mid-April, stocks surged higher through the first half of May, setting new highs... before last week's action put it right back to where it was in March.
The Relative Strength Index (RSI, purple box above) shows we're right around neutral... potentially working off the consistently but not extremely overbought conditions all throughout the first quarter.
But the bottom line is, if you're a strict index-fund investor, you just spent the better part of three months on a rollercoaster ride and just rode back to the starting gate.
Granted, you're still up for the year... but other strategies are up much more. We can take it right back to Jason Bodner. One of his Quantum Edge Pro recommendations from back in December – a company that falls right into the "boring but beautiful" camp Lucas Downey and I recently highlighted – is up 47%. Another, from January, is up more than 28%. Those two stock picks alone are beating the market handily. And that's not to mention his recommendation of Super Micro Computer (SMCI) from last September, up 180% at last glance.
But as one trader from our extended network can attest, stock-picking isn't the only strategy working well right now... ❖ Jonathan Rose just scored 30% in three weeks on the last company you'd guess... 25-year trading veteran and Masters in Trading founder Jonathan Rose is a master of options flow. He uses advanced screeners to tell him when big institutions are making big short-term bets on stock prices.
It's actually quite similar to what Jason does... but focused on the fast-moving world of options.
A few weeks back, Jonathan and his subscribers got a signal on retailer Foot Locker (FL) as part of his Earnings Advantage advisory. It showed that traders expected a 20% move going into its earnings report later that month.
What's great about Jonathan's approach is he doesn't try to guess which direction the stock is likely to go post-earnings. As any trader who's targeted earnings reports will tell you, it's a highly unpredictable event – with favorable results occasionally causing downside price action, and vice versa.
That's why Jonathan uses a special options technique, called a "strangle," designed to profit so long as the stock sees a substantial move in either direction.
After he recommended the trade, readers just had to sit back and wait... and after FL's earnings report on Thursday showed the company's turnaround efforts were working, the stock shot up and Jonathan's subscribers cashed in. 
I like this trade for two reasons: One, for Jonathan's approach of not trying to guess the earnings move, and two, for the fact that it's in a lesser-watched stock.
Trying to trade a stock like Nvidia (NVDA) or Tesla (TSLA) on earnings is so crowded, it's often the case that you can be right but still lose money on the option as volatility drops. That's why Jonathan targets lesser-known companies with unusually high option volume.
If you'd like to get to know Jonathan and his approach better, I highly suggest tuning into his free daily livestreams, Masters in Trading Live. There he shares what he's seeing on his options flow scanners... and gives some ideas for how you can trade it. Admission to Jonathan's private community, where he shares his top recommendations, is closed for the time being. But you can attend his free livestreams, and when you sign up for those, you'll be the first to know when he accepts new members. Check out the details here. RECOMMENDED LINK
❖ To wrap up today, a fascinating story from our friends at LikeFolio... Elon Musk has hardly tried to hide his political awakening over the last year.
Since taking over Twitter and rebranding it to X, Musk has plainly told his followers to vote Republican, weighed in on the rapid uptick in illegal immigration, and openly criticized President Joe Biden.
On this last point, Elon has an additional business interest. The White House had continually snubbed Tesla as one of the country's key EV makers, instead offering subsidies to automakers – namely General Motors (GM) and Ford (F) – who build EVs in the United States with unionized labor.
All this is to say, Elon Musk has a chip on his shoulder about the sitting U.S. president. He also happens to be the wealthiest person in the world... and in control of one of the most powerful social media networks.
Andy and Landon Swan, founders of LikeFolio, have been following the story closely. And they've now found reason to believe Elon Musk is deliberately tilting the X algorithm to hurt Biden's chances of re-election. Here's Andy: I have good reason to believe that Elon Musk is set to launch a massive act of revenge against President Joe Biden's re-election campaign as soon as July 18.
It has nothing to do with AI... self-driving cars... rocket ships... or any other inventions that Elon gets press about. Instead, I believe that Elon will usher in an unexpected outcome in the 2024 presidential race.
That could lead to a contested election result... and a fundamental change in all presidential elections moving forward. It could change the face of American society — impacting free speech, privacy, even war and personal safety...
It could also upend the U.S. economy — everything from taxes, wars, inflation rates, and the stock market.
According to Andy, there's a good chance Elon Musk will attempt to influence the coming election. And his recent history suggests he'll try to throw it to Trump. Recent reports that Trump is considering Elon Musk for a White House advisory role in the event he wins practically seals the deal.
No matter where this story winds up, we as investors have to pay attention to it. We have to know what sort of investments would do better in a Trump presidency, especially with Musk helping steer the ship. To discuss this possibility and share three investment ideas to take advantage of it, Andy recently aired an urgent research presentation you can watch here.
He believes it's imperative to make these moves before July 18, which lines up with the final day of the Republican National Convention. So be sure to hear what Andy's got to say well before then.
Click here to hear this urgent presentation for free, right now. To your health and wealth, 
Michael Salvatore
Editor, TradeSmith | 
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