Top 10 Stocks to Buy as CPI Inflation Comes Roaring Back

Wednesday’s much-anticipated U.S. consumer price index (CPI) inflation report for March came in hotter than expected, providing further evidence that the Federal Reserve will be in no rush to start cutting interest rates anytime soon.

U.S. March CPI

Source: Investing.com

The CPI rose 0.4% last month, matching the largest monthly increase since September. In the 12 months through March, the annual CPI increased 3.5%, above forecasts for 3.4%. That followed a gain of 3.2% in February.

Excluding the volatile food and energy components, core CPI climbed 0.4% over the prior month and 3.8% over last year. The forecast had been for 0.3% and 3.7%, respectively.

While headline CPI has come down significantly from a 40-year high of 9.1%, the data confirmed that the decline in inflation that began in the summer of 2022 has all but stalled.

Taking a closer look at the chart below reveals that the annual CPI rate has been stuck in a range between 3.0% and 3.8% for the past nine months, highlighting the challenge faced by the Fed in the ‘last mile’ of its fight against inflation.

U.S. CPI Y/Y

Source: Investing.com

The ‘last mile’, which is often the hardest to bring under control, refers to the final 1% or 2% of excess inflation that the Fed needs to overcome to meet its 2% target.

Key Takeaway

The Fed’s inflation battle is far from over.

U.S. CPI inflation is still rising far more quickly than what the Fed would consider consistent with its 2% target range.

Additionally, core inflation is proving stickier than expected and is anticipated to remain well above the Fed’s target for the foreseeable future.

U.S. Core CPI Y/Y

Source: Investing.com

Furthermore, there is a growing risk that inflation might even go higher from here considering the recent spike in commodity prices.

Taking that into consideration, the U.S. central bank will be in no rush to lower its key Fed funds rate after another hot inflation report.

As such, I am sticking to my view that the Fed will not be cutting interest rates this year, with the first move now likely to only happen in Q1 2025.

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Top 10 Stocks to Buy Now as Per InvestingPro:

1. Charter Communications (NASDAQ:CHTR): InvestingPro Fair Value Upside: +43.5%
   
2. Humana (NYSE:HUM): InvestingPro Fair Value Upside: +41.7%
3. CVS Health Corp (NYSE:CVS): InvestingPro Fair Value Upside: +40.9%
4. Incyte Corporation (NASDAQ:INCY): InvestingPro Fair Value Upside: +39.3%
5. Cleveland-Cliffs (NYSE:CLF): InvestingPro Fair Value Upside: +39.1%
6. Twilio (NYSE:TWLO): InvestingPro Fair Value Upside: +38.3%
7. Gen Digital (NASDAQ:GEN): InvestingPro Fair Value Upside: +37.3%
8. Loews Corp (NYSE:L): InvestingPro Fair Value Upside: +37%
9. Capital One Financial Corporation (NYSE:COF): InvestingPro Fair Value Upside: +36.3%
10. State Street (NYSE:STT): InvestingPro Fair Value Upside: +35.6%

InvestingPro Screener

Source: InvestingPro

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Disclosure: At the time of writing, I am long on the S&P 500, and the Nasdaq 100 via the SPDR S&P 500 ETF (SPY (NYSE:SPY)), and the Invesco QQQ Trust ETF (NASDAQ:QQQ). I am also long on the Technology Select Sector SPDR ETF (NYSE:XLK).

I regularly rebalance my portfolio of individual stocks and ETFs based on ongoing risk assessment of both the macroeconomic environment and companies' financials.

The views discussed in this article are solely the opinion of the author and should not be taken as investment advice.