Inflation cools – and I'm still constructive on stocks; A new rent-versus-buy calculator; The latest with the miraculous new weight-loss drugs

1) This morning's subdued inflation report and positive market reaction reinforces what I've been saying for more than a year...

Inflation has ceased to be a problem, which is one of the main reasons (along with a booming economy and strong jobs market) why I remain constructive on stocks.

In fact, with the big move higher so far, the S&P 500 Index is on track to hit another all-time closing high.

The Consumer Price Index ("CPI") rose 3.4% in April from a year ago. Meanwhile, so-called "core" prices – which exclude the more volatile categories of food and energy – rose 3.6% year over year. That's the lowest increase since April 2021.

Diving into the weeds, the New York Times highlighted the following:

• Retail sales came in weaker than expected, in a potential sign that high prices are continuing to depress purchases. The flat number came after a strong February and March, however, so it may not add up to real evidence of a downturn.
• One of the biggest drags on inflation came from cars – prices for used vehicles were down 1.4 percent over the month, and the cost of new vehicles declined 0.4 percent.
• Even though it's slowing, the rise in car insurance is still staggering compared with other inflation components. Car insurance prices haves risen by 22.6 percent over the last year.
• Food inflation eased in April, providing some relief to grocery shoppers struggling to deal with higher costs.

Overall, food prices were flat compared with the prior month, a slowdown from March, when prices rose 0.1 percent. Grocery prices fell 0.2 percent in April after remaining flat for two straight months. The cost of dining out rose 0.3 percent for the second month.

• Airfares appear to have resumed their downward slide, after having risen sharply in the second half of last year. They have declined 1.2 percent over the past two months.
• One component pushing up the headline inflation index was energy, which has been bouncing around a lot since peaking in 2022. It rose 1.1 percent over the month and is up 2.6 percent since last year.
• Housing inflation remained unchanged in April... Economists have been closely watching housing inflation, which makes up about a third of Consumer Price Index inflation. They have expected it to cool meaningfully, but so far it has moderated only slowly.

In summary, the NYT noted:

Renewed signs of cooler inflation have bolstered hopes of rate cuts this year. Investors have tilted their bets toward September for when the Fed will first cut interest rates, based on prices in interest rate futures markets, with another cut expected by the end of December.

For some more perspective, here are two helpful charts – courtesy of this post on X from Liz Ann Sonders, the chief investment strategist for Charles Schwab (SCHW):

Today's report should also ease small-business owners' concerns about inflation – see this other post on X from Sonders yesterday:

I continue to believe that the new normal for inflation is between 3% and 4% – which the Federal Reserve, businesses, consumers, and investors will become accustomed to.

And it's a decent environment for investors... They can earn more than 5% holding cash or investing in the market, which I think will deliver satisfactory returns thanks to a continued strong economy.

Eventually, of course, the economy will weaken. But at that point, the Fed has plenty of room to cut rates – which is usually good for stocks – and would provide relief to low- and middle-income households, which have been hit hard by the steep rise in interest rates.

This NYT article from yesterday has more on the effect of rates for these folks: High Interest Rates Are Hitting Poorer Americans the Hardest. Excerpt:

[For] millions of low- and moderate-income families, high rates are taking a toll.

More Americans are falling behind on payments on credit card and auto loans, even as many are taking on more debt than ever before. Monthly interest expenses have soared since the Federal Reserve began raising interest rates two years ago. For families already strained by high prices, dwindling savings and slowing wage growth, increased borrowing costs are pushing them closer to the financial edge.

2) One of the most important and difficult financial decisions most Americans have to make – often many times in their lives – is whether to rent or buy a house.

Owning a home with a government-subsidized, fixed-rate, 30-year mortgage has been one main ways American families have built wealth over time.

But buying a home isn't always the best decision, especially now that mortgage rates have spiked from less than 3% as recently as late 2021 to more than 7% today.

The NYT has just updated its financial calculator to help its readers with the very complex financial variables associated with the rent-versus-buy decision – you can access it here.

You need to enter 24 numbers – some of which are known (the price of the house you're thinking of buying, the cost to rent, the mortgage rate, etc.) and some of which require estimates (how long do you plan to stay, how fast do you think home and rental prices will rise, etc.) – and the calculator spits out an answer like this:

The financial considerations aren't the only ones, of course...

For instance, I weighed a range of factors when advising my sister last year.

As I mentioned in my April 18 e-mail, she had moved from Kenya to take a new job in the Washington, D.C. area. She felt like paying rent was a waste of money and wanted to buy, but I persuaded her not to for a number of reasons:

• Housing prices in D.C. are very high, which – combined with high mortgage rates – would make monthly payments from owning much higher than renting.
• She can always buy at some point in the future – and, in the meantime, the cash she would have used for a down payment can earn more than 5% interest risk-free – likely a higher return than any home price appreciation.

• Her son went off to college last fall, so she doesn't need to buy her way into a good public-school district. 

• While her employer is based in D.C., she's allowed to work from anywhere – a valuable option that would be constrained if she owned a home.
• The contract for the project she's working on is for only three years, so she might want to move after that.

In short, she's almost the perfect example of someone who should rent – at least until she's sure than she will be in D.C. for the long run.

She ended up renting this lovely little house in Takoma Park, Maryland and is very happy:

3) I continue to follow the miraculous new weight-loss drugs...

So I was interested to read this insightful op-ed in last week's NYT that rebuts the (unwarranted) shame and stigma many users feel: A Year on Ozempic Taught Me We're Thinking About Obesity All Wrong. Excerpt:

Ever since I was a teenager, I have dreamed of shedding a lot of weight. So when I shrank from 203 pounds to 161 in a year, I was baffled by my feelings. I was taking Ozempic, and I was haunted by the sense that I was cheating and doing something immoral.

I'm not the only one. In the United States (where I now split my time), over 70 percent of people are overweight or obese, and according to one poll, 47 percent of respondents said they were willing to pay to take the new weight-loss drugs. It's not hard to see why. They cause users to lose an average of 10 to 20 percent of their body weight, and clinical trials suggest that the next generation of drugs (probably available soon) leads to a 24 percent loss, on average. Yet as more and more people take drugs like Ozempic, Wegovy and Mounjaro, we get more confused as a culture, bombarding anyone in the public eye who takes them with brutal shaming.

This is happening because we are trapped in a set of old stories about what obesity is and the morally acceptable ways to overcome it. But the fact that so many of us are turning to the new weight-loss drugs can be an opportunity to find a way out of that trap of shame and stigma – and to a more truthful story.

For more on these drugs, I recommend Johann Hari's new book: Magic Pill: The Extraordinary Benefits and Disturbing Risks of the New Weight-Loss Drugs. Here's a 15-minute interview he did: Ozempic Expert: 'Next Opioid Crisis?'

Hari acknowledges that there are 12 risks associated with these drugs (which he covers in his book) but adds that there are 200 negative health effects from obesity. For example, an obese 18-year-old is about 70% more likely to develop diabetes, which can shorten life expectancy by 15 years!

He comes out where I do:

• The benefits of these drugs for obese people far outweigh the risks.
• Half of Americans will be on these drugs in the not-too-distant future.

Lastly, here's a podcast Hari did with Andrew Sullivan: Johann Hari On Ozempic And Big Food.

4) As for how to profit in the markets from this enormous new trend, that's a tougher question, as this Wall Street Journal article notes: Making Money Off the Weight-Loss Revolution Has Even Wall Street Befuddled. Excerpt:

Since drugs such as Mounjaro, Wegovy and Ozempic became sensations last year, Wall Street has rushed to work out just how disruptive the drugs, called GLP-1s, might be.

No longer are hedge funds and asset managers interested in just plowing money into Novo Nordisk and Eli Lilly, the leading makers of the therapies. Instead, they are eager to pinpoint the companies that could flop or flourish as waistlines shrink and consumers' habits change.

There has been no shortage of ideas. Analysts forecast that upheaval could spread through a range of industries, affecting snack companies, fast-food restaurants and medical-device stocks. Even airlines could be affected, a team at Jefferies predicted, calculating how much carriers could save on fuel by transporting lighter passengers.

The WSJ article also featured these two interesting charts:

I'll note that here at Stansberry Research, my colleagues were writing about Novo Nordisk as a way to take advantage of this trend well before it was on everyone's radar...

In our flagship newsletter, Stansberry's Investment Advisory, Alan Gula and Dave Lashmet recommended buying NVO shares in the December 2019 monthly issue. As they concluded back then:

Not only will Novo Nordisk benefit from the tailwind of rising global obesity, but it's also going to invest more heavily to produce next-generation drugs.

Novo Nordisk is dominating the fast-growing GLP-1 market. With its next-generation drugs Ozempic and Rybelsus, the company will remain a leader in diabetes care in the years to come. On top of that, the company has promising obesity treatments in its pipeline. It even has a potential wonder drug cocktail that could help alleviate the global obesity epidemic.

Since that issue, the Novo Nordisk position in the Investment Advisory is up a staggering 380%. Congratulations to Alan and Dave for an incredible call!

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Best regards,

Whitney

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