Falling chicken prices Signal inflation relief

  • Chicken wings prices have fallen to pre-pandemic levels, which is great news for the stock market, according to Fundstrat.
  • The research firm said any signs of deflation could show investors that inflation isn’t as sticky as some feared.
  • “Inflation was the biggest headwind for the markets in 2022 and the inflection is key to market recovery,” Fundstrat said.

Falling chicken wings prices are a good sign for the stock market as they show inflation is on the decline, Fundstrat’s Tom Lee said in a note released Friday.

Chicken wings prices have fallen 62% from their peak to levels not seen since 2019. “That’s not ‘cooling’ inflation… This is outright deflation. Prices falling to 2019 levels are a three-year decline,” Lee said.

The sharp fall in chicken prices could help convince investors that inflation isn’t as sticky as some had feared. If pricing for other commodities and commodities follows the path of chicken wings, it means the Federal Reserve has room to turn away from its excessive rate hikes.

“Inflation was the biggest headwind for the markets in 2022 and the inflection is key to market recovery,” explains Lee.

Moreover, it is not only the chicken prices that are falling. The Philly Fed’s August manufacturing outlook survey found that both prices paid and received had fallen significantly from the previous month.

And perhaps most importantly, the housing market is showing signs of weakening due to falling prices and slowing home sales.

“As with other data, [Redfin] data shows that house prices are weakening. This reflects the simple fact that with higher mortgage rates along with tighter lending and less security, selling prices should come down,” Lee said.

But this doesn’t mean a recurrence of the housing crash is imminent, Lee said, as total housing construction has remained below its long-term average and represents a smaller portion of the U.S. economy than it was in 2008.

A cooling of the housing market without an outright collapse could make significant progress in taming inflation, as rising house prices were the norm during the peak of the pandemic in 2020 and 2021.

“Residential cooling should lead to a falling CPI. There is a slowdown, but… as housing cools, the CPI on housing will also decrease,” Lee said.

Ultimately, falling prices in everything from chicken wings to houses reinforce the idea that inflation has peaked and will remain lower in the coming months.

And that means the Fed could slow its rate hikes, which would be a relief for stock prices and then some, as Lee thinks the S&P 500 could soar to new record highs before the end of the year.

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