Don't Trade the Inflation News Until You See This!
In a Nutshell
Markets rallied on a softer-than-expected PCE print, but roughly 20 bps of the 30 bp decline came from a methodology change that lowered three service categories retroactive to 2021. A hotter-than-expected ADP jobs print (90 k vs 73 k) pushed the odds of a July hike back above 40 %, keeping rate-cut hopes in check. Micron earnings later today are the next catalyst; the stock is viewed as fundamentally cheap but technically overbought with a binary outcome expected around the 1,100 resistance level.
These notes were generated by AI and may contain inaccuracies.
The market is celebrating the falling inflation report, but the question remains whether inflation has truly fallen or if the measurement methodology has changed. The PCE report calculation method has been changed starting from today's release. The Nasdaq market is bullish following the report coming in lower than expected.
Core PCE came in at 3% versus the expected 3.3%. The PCE price index rose 5% from 3.7 to 3.4, and the PCE price index rose 5.3% overall. The probability of an interest rate hike dropped from 75% to 30% at one point, now back to 41%. Interest rates are now more likely to remain unchanged based on the report.
Starting with today's release, the United States has changed the methodology for three major PCE inflation categories and revised data through 2021. The affected categories are:
- Portfolio management and investment advice
- Computer software and accessories
- Legal advice and legal services
Based on this new approach alone, it could reduce core PCE by 20 basis points. Today's decline was 30 basis points. This does not mean inflation has not decreased, but the new calculation method shows a 30 basis point decline.
The question arises why the calculation methodology is being changed when inflation is rising. The new method makes the inflation numbers appear less severe. The changes affect how reports are published, making the situation look somewhat better.
Today's ADP employment change came in at 90,000, exceeding the expectation of 73,000. This stronger-than-expected labor market is good for employment but bad for Federal Reserve policy, as it supports an interest rate hike rather than a pause. A strong labor market can withstand interest rate increases, while a weak market cannot.
Markets will not ignore the PCE inflation report, which remains the main topic of discussion. Yesterday's labor market report was weak, making it less supportive of interest rate increases, while today's strong labor market data is more supportive of rate hikes.
A current trade in MSTR resulted in approximately $900 profit. The position is being closed due to weakness in the stock. Cash is being preserved ahead of the Micron earnings report.
Micron Technologies has a 21.4% upside potential on a fair value basis and is trading at a 24 P/E ratio, which is historically very low from a fundamental perspective. The company generates $90 billion in revenue and $50 billion in net profit. EPS expectations are $31 per share with revenue expectations of $50.45 billion.
Micron is a highly volatile stock and one of the best performing stocks of 2026. The stock has experienced a 15% increase and a 19% decline. Technical analysis shows general support around 900, with the stock currently testing resistance near 1,100. Fundamentals and the earnings guidance are considered more important than technical indicators.
If Micron rises above 1,100, a breakout could occur. However, if earnings miss expectations or show signs of concern, a pullback to around 900 could happen. The stock has been very overbought in a short period, leaving no room for error in maintaining investor excitement.
Live trading of Micron is planned after market close, approximately 15 minutes before the earnings report. No open trades are currently held, with plans to observe whether the stock gaps up or down for potential intraday opportunities.
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A $1,000 giveaway is scheduled for Sunday. Participants must sign up for Webull using the link in the description and make an initial qualifying deposit of $5 or $100 to be automatically entered. One participant will be selected each Sunday during the live event.
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