Happy Friday! Today’s email covers:

• CPI vs PCE: What Is The Difference?

• CrowdStrike Apologizes With… A Gift Card?

• S&P 500 & Nasdaq Have Worst Day Since 2022

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• Stock Market Recap For The Week (Week return as of market open, Friday July 26th)

  • S&P 500 = -1.81%

  • Nasdaq = -3.36%

  • Dow Jones = -0.05%

CPI vs PCE: What Is The Difference?

Did you know there are 2 inflation indexes… confusing, I know. While most of us have probably heard about CPI (Consumer Price Index), the second inflation index is PCE (Personal Consumption Expenditure).

CPI usually makes the headlines while PCE is actually the preferred inflation index of the Federal Reserve… but what makes them different?

Firstly, just looking at the most recent numbers, CPI in June YoY was 3.0% while PCE for June YoY was 2.6%. On average, CPI usually runs about 0.4% higher than PCE, so that makes sense for June numbers. However at the peak of inflation in 2022, CPI was nearly 2% higher than PCE.

Secondly, the weights used to calculation inflation data is different between CPI & PCE.

As seen from the pie charts above, housing makes up 32% of CPI data while it only makes up 15% of PCE data. On the flip side, healthcare makes up only 9% of CPI data while it makes up 21% of PCE data. Different weights = different inflation data.

So why does the Fed use PCE as their preferred index?

The Fed has used PCE inflation as their preferred index since 2000. They say PCE data is more comprehensive than CPI data. Secondly, the weights in the PCE are updated on a more frequent basis than CPI. Lastly, PCE data can be retroactively revised to account for new data or measurement techniques while CPI is generally only revised to account for seasonal factors. [1]

What is the takeaway? While CPI data is the one that usually makes the headlines, it is important to remember that the Fed (who controls the interest rates) use PCE data as their preferred index. As of the latest print, which was Friday July 26th, PCE data looks like this:

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CrowdStrike Apologizes With… A Gift Card?

On July 19th, CrowdStrike caused the largest IT outage in history. To apologize for this mistake, they offered a $10 UberEats gift card to those affected.

To make this even worse, it is reported that some people received an error when they went to redeem the offer saying the voucher has been canceled.

I decided to look at what a “late night snack” from McDonalds would cost me to get delivered in my area… well, thanks CrowdStrike, but your apology doesn’t even pay for a basic meal.

What is the takeaway? While a $10 gift card is better than nothing, it is almost WORSE that they did that because of the backlash they are receiving from it.

S&P 500 & Nasdaq Have Worst Days Since 2022

On Wednesday, July 24th the S&P 500 + Nasdaq both had their worst days since 2022.

The S&P 500 was down -2.31%

The Nasdaq was down -3.64%

This can cause a lot of fear in the market. Wow, QQQ is down nearly 4% in one day!!! However, I am here to remind you that one day market performance should not dictate your investing.

If we zoom out, just a little bit, we are reminded that the S&P 500 is up 14.74% in 2024 while the Nasdaq is up 16.93% in 2024.

In the last 5 years?

The S&P 500 is up 79.85%

The Nasdaq is up 107.29%

What is the takeaway? I always say “zoom out”, but this is a great example when you need to take a breath & zoom out. Seeing a headline read “Worst Day Since 2022” can incite investing fear. However we have to remember that if you are a long term investor, zooming out is KEY.

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