Here are some stock moves to consider now that inflation has eased up, says Jefferies

But should investors really count on prices continuing to fall from here? For one thing, war continues to rage in Ukraine, fueling Europe’s energy crisis and winter is coming. The Fed is probably also “far from declaring victory over inflation,” say Jefferies strategists.

“Jefferies economic team still believes that there is a persistent component to inflation, stemming from housing and labor shortages, which will not be resolved any time soon and these two forces outght to put a floor under core CPI at around 4%,” notes a team led by Sean Darby, global equity strategist, in a fresh note to clients.

One takeaway from that 8.5% July CPI reading is that “the risk of an overtightening in U.S. financial conditions has been removed. A deep U.S. curve inversion is unlikely now,” said Darby.

In our call of the day, we look at some switching up of stock strategies post data from Darby and the team.

Jefferies’ U.S. financial conditions index has “turned from its extreme,” and they are now taking a long, or bullish stance on an early cyclical basket over defensives, and have also upgraded financials to bullish. They’ve shifted to a bearish stance on healthcare.

Here’s a table showing which stocks have been the best performers after the yield curve has moved from inversion to steepening:

Darby also thinks the dollar
DXY,
-0.25%
has likely peaked, prompting them to go long on a basket of S&P 500
SPX,
+2.13%
dollar beneficiaries, while they continue to prefer gold mining stocks on a view the Fed will find it tough to return to 2% inflation.

This Jefferies chart shows S&P 500 stocks that have been best performers three months after the Dollar Spot Index peaked in 2020.

“The drop in gasoline prices, long-term rates and CPI is excellent news for the global consumer. We have highlighted that never in history has global consumer confidence numbers been so ubiquitously bad,” said Darby, who is also lifting their weighting in a consumer discretionary basket to bullish.

Read: Stocks rally like it’s ‘mission accomplished’ — but some investors are urging caution as Nasdaq exits bear market

The markets

U.S. stock futures
ES00,
+0.54%

YM00,
+0.60%

NQ00,
+0.56%
are higher, with bond yields steady. The dollar is up slightly and gold
GCZ22,
-0.13%
and silver prices
SIU22,
-0.78%
are falling. Oil prices
BRN00,
+1.10%

CL.1,
+1.29%
are higher after the International Energy Agency said European heatwaves have been boosting demand for the commodity.

The buzz

Disney
DIS,
+3.98%
shares are climbing after the entertainment giant’s streaming subscriber numbers beat those of Netflix
NFLX,
+6.16%,
and it is hiking prices of those services by 38%.

Six Flags stock
SIX,
+5.78%
is dropping after attendance misses leads to a surprise revenue fall.

On the heels of that inflation tumble, gasoline prices dropped below $4 per gallon for the first time in months.

Cisco
CSCO,
+2.45%
said it was breached by a hacker with links to notorious cybercrime groups, but so far no critical systems or customer data has been affected.

Struggling crypto exchange Coinbase
COIN,
+7.37%
has confirmed a probe by the Securities and Exchange Commission of its listing and staking programs.

Weekly jobless claims and producer prices are ahead.

Best of the web

Sharp drops in cortisol a strong predictor for who gets long COVID

New Zealand wants wealthy tourists, not the $10-day kind

Fascinating insights into adolescent brains

The chart

Find that tweet here.

Top tickers

These were the top-searched tickers on MarketWatch as of 6 a.m. Eastern.

Random reads

Crying CEO announces layoffs, gets roasted

Brazilian police find stolen $50 million painting under a con artist’s bed

Massive erosion at Valencian beach leaves swimmers jumping off into the sea.

Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. The emailed version will be sent out at about 7:30 a.m. Eastern.