Will CPI Tank if EPS Declines for the Dow Jones Industrial Average?

July 13, 2021, 10:45 am ET, BY Scott B.- Contributor| Editor: Thomas H. Kee Jr. (Follow on LinkedIn)

The knee jerk reaction to the hotter than expected CPI data today was negative, but the S&P 500 (INDEXSP: .INX) has already recovered from the early dip.  This is not surprising because the hotter data was not out of line with reasonable expectations.

Reasonably, hot inflation data should still be expected now, but if inflation is akin to the upcoming change in earnings growth rates for the market, the next installment of CPI will be tamer. 

If the CPI data is this hot next time, it will be a more material concern.

EPS declines for the Dow Jones Industrial Average (INDEXDJX: .DJI) begin next quarter, and continue through next year.  Using the charts below, DJIA EPS growth tanks from an expected 18.6% this quarter, to 2.86% next quarter.

Additionally, if growth rates tank, valuations get stretched.  Look at the PEG chart too.

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Support and Resistance Plot Chart for DJI

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