Insights 
VT 
In June, U.S. consumer prices rose with the headline CPI up by 0.3% month-over-month, meeting expectations. The core CPI, excluding food and energy, rose by 0.2%, slightly below the forecast. Headline CPI reflected a year-over-year increase to 2.7% from 2.4%, and core CPI rose to 2.9% from 2.8%.
Key contributors included shelter (+0.2%), energy (+0.9%), and food (+0.3%). Gasoline prices went up by 1.0%, while food categories increased. Within core components, prices for household furnishings, medical care, and personal care rose, though vehicle and airline fares declined. Annually, food prices were 3.0% more, and energy prices dropped by 0.8%.
Core Goods Cpi And Yield Curve
Core goods CPI showed a 0.7% increase, indicating tariff-related inflation. This suggested a core PCE rise of 0.35%, pending PPI data. Despite this, overall CPI rising only slightly keeps inflation steady. The yield curve displayed increases, with the two-year yield at 3.952% and the 30-year at 5.021%.
The yield increases affect housing negatively. Economic viewpoints were discussed by Fed members, with emphasis on analyzing data before interest rate decisions. Inflation through tariffs is expected to last through 2025. Stock markets faced declines, except for the chip sector which gained. Ultimately, indices closed lower, impacted by higher rates.
The CPI print has given us a classic head-fake. While the headline numbers looked tame, the engine room of the economy is flashing red. That surge in core goods inflation, the largest in two years, isn’t some random blip; it’s the tariff dragon breathing fire, just as Barkin warned. This isn’t the kind of inflation the Federal Reserve can easily tame with its blunt instruments, and the bond market knows it. The swift return of yields to those psychological markers—a 10-year back near 4.5% and the 30-year piercing 5.0%—tells us the market is aggressively repricing the path of monetary policy.
Market Strategies And Sector Vulnerabilities
For us, the strategy must adapt immediately. The odds of a September rate cut, which were hovering around a coin flip just weeks ago, have now plummeted. Looking at the CME’s FedWatch Tool, the market is now pricing in less than a 40% chance of a cut, a dramatic reversal. This means we should be looking at strategies that benefit from this “higher for longer” reality. We see value in options on Treasury futures, specifically buying puts or establishing put spreads on the 10-year Note (ZN) and 30-year Bond (ZB) futures, treating those recent yield lows as a floor that has been firmly reestablished.
This environment is creating a treacherous divergence in the equity markets. Higher rates are a headwind for the broad market, but a tailwind for specific narratives. We saw the Dow get hit while the Nasdaq, powered by the lifting of chip restrictions, levitated. This isn’t a market to buy indiscriminately. We believe the play is to lean into this split. The PHLX Semiconductor Index (SOX) has outperformed the S&P 500 by over 15% in the last quarter, a gap we expect to widen. Derivative traders should consider long call spreads on semiconductor ETFs like SMH to capture the upside from the AI arms race while limiting premium outlay.
Simultaneously, we must target the sectors most vulnerable to rising rates. The jump in yields is a direct blow to the housing market. With the National Association of Realtors’ affordability index already sitting near its lowest level in four decades, a sustained 5% 30-year mortgage rate will choke off demand. This makes bearish positions on homebuilder ETFs (XHB) particularly attractive. Buying puts on these sectors can act as an effective hedge against the very rate pressure that is spooking the wider market. Collins’s call for being “actively patient” sounds calm, but for the markets, it translates to prolonged uncertainty. In this context, with the VIX index still hovering in the low teens, we view volatility as dangerously underpriced. Buying cheap, longer-dated puts on the SPY or IWM is a prudent way to insure portfolios against the inevitable turbulence as the market digests a world of sticky, policy-induced inflation.
