Event Spotlight | June CPI Analysis and Investment Recommendations

💡Key Takeaways

June CPI came in broadly below expectations, with the cooldown not solely driven by oil prices—slowing shelter costs, weakening core services, and persistently soft core goods all point to a more widespread easing of inflationary pressures.We believe May marked the peak of inflation, and June’s data provides initial confirmation that the peak has passed. However, it would be unwise to extrapolate a single month’s data linearly. Headline risks in July–August include rebounding oil prices and mean reversion in core services. In terms of asset allocation,Tech stocks remain our top choice for return-generating assets, U.S. Treasuries serve as portfolio stabilizers, and gold ranks lower in allocation priority.

🔍 I. Data Context: Broadly Below Expectations, Widespread Cooling

June CPI YoY rose 3.5%, below the expected 3.8% and prior reading of 4.2%; CPI MoMfell to -0.4%, below the expected -0.1% and prior +0.5%; Core CPI YoY rose 2.6%, below the expected 2.8% and prior 2.9%; Core CPI MoM was flat at 0.0%, below the expected 0.2% and prior 0.2%.

Inflationary pressure has clearly eased, and the May uptick did not evolve into a sustained re-acceleration.June CPI not only declined significantly overall, but the core components also weakened in tandem—contrary to the market’s concern about a scenario where energy prices ease while core services remain stubbornly high.The broad-based nature of this cooling is precisely what made the data exceed expectations.

II. Energy Component: The Overwhelming Primary Driver Behind the Overall Cooling

Energy prices fell 5.7% month-over-month in June, includingGasoline prices dropped 9.7% month-over-month, highly consistent with the decline in international oil prices and retail gasoline prices over the past six months. Most sell-side research had clearly anticipated 'oil payback starts' even before the data release; the cooling in energy prices alone was not surprising.What exceeded expectations was that components beyond energy also cooled down.

Among them, shelter costs rose month-over-month byonly +0.1%,，marking the smallest monthly increase since January 2021.Shelter carries a high weight and strong inertia within core inflation; if shelter costs had remained elevated, the drop in gasoline prices alone would only have lowered headline inflation, without significantly easing core inflation.This synchronized slowdown in shelter costs gives markets stronger grounds to believe that underlying inflationary pressures are also moderating.Additionally, transportation services declined by -0.3% month-over-month, motor vehicle insurance by -2.0%, medical care services by -0.1%, and hotels by -2.32%. Both auto insurance and hotel prices have been sources of concern for services inflation in recent months, but they tend to exhibit significant month-to-month volatility; if they rebound in July, core CPI could rise back to 0.2% or even higher on a monthly basis.

Markets quickly repriced following the CPI release.The 2-year U.S. Treasury yield fell by 9.2 bps to 4.18%., most sensitive to the Fed's path and thus benefiting the most; the 10-year U.S. Treasury yield also declined in tandem, but by a smaller magnitude than the front end.The dollar fell from 101.283 to 100.936, as tightening expectations eased.Gold rebounded +1.29% to $4,054 per ouncedriven jointly by declining real rates and a weaker dollar.

Notably in this round, the Nasdaq led gains, with semiconductors strengthening in sync, rising +1.1%.In contrast to the post-July 3 nonfarm payrolls data release, when the dollar dropped but the Nasdaq failed to follow through,this time tech and growth sectors led the rally, aligning more closely with the logic that falling rates support valuation multiples for growth stocks, rather than being driven purely by risk-off sentiment.

IV. Foreign Sell-Side Views: Rhetoric has intensified, but divergence remains

Morgan Stanley, in a report titled 'Disinflation started,' presents three core views: first, the month-over-month CPI readings have been notably below its forecasts;Essentially completedsecond, tariff pass-through has not exerted significant additional upward pressure on core goods inflation since February 2026; and third, core services inflation has been weaker than expected.Morgan Stanley identifies June as the starting point for renewed disinflation.Citi takes an even more dovish stance, expecting core CPI to continue declining over the coming months—going further than what is currently priced into markets.

More cautious views also exist in the market—One data point can buy you time, but not a trend.Key reasons include: weakness in hotels, insurance, and medical services may be transitory; if oil prices rebound again in July, the month-over-month core CPI could reaccelerate.

💡 V. Our View

We believeif core CPI remains persistently strong, the market would not simultaneously rally in the Nasdaq, semiconductors, U.S. Treasuries, and gold.Housing has slowed, core services have weakened, and core goods remain soft; the broader cooldown has not only bought time but also eased sentiment.

However, the following risks cannot be ignored: energy components are prone to reversal due to geopolitical and supply shocks; if items such as hotels, auto insurance, and medical services rebound in July, core CPI month-over-month could rise again; prior to the data release, Warsh and some Fed officials continued to emphasize that if core inflation runs hot, a near-term rate hike remains possible. By mid-July, oil prices and geopolitical risks had already escalated again, reigniting market concerns over Strait of Hormuz shipping risks and heightened tensions in the Middle East.

Therefore, we support the view that May marked the peak in inflation and June confirmed the peak has passed, but we do not advocate linearly extrapolating June’s trend forward. Structurally, housing—the most persistent component—is the key anchor for assessing the path of core inflation—If housing has begun a systematic step-down, the probability of core inflation continuing to decline year-over-year over the coming months will increase significantly. We expect inflation to gradually ease in a volatile manner between July and August, as fluctuating oil prices offset mean reversion in core services.

💡 VI. Asset Allocation

Tech stocks are the top choice among return-seeking assets most responsive to June’s CPI data. June’s CPI reading allows portfolios to reallocate toward growth and duration exposure again, as tech stocks are most sensitive to front-end rates. Semiconductors offer the highest short-term elasticity but also the highest crowding.It is advisable to moderately rotate within the tech sector from the most crowded trades toward large-cap leaders offering better valuation.，Combine the Magnificent 7, software, and the broader Nasdaq-100 (NDX) to optimize portfolio structure. If economic data in July–August continues to support the Fed holding rates steady, valuation recovery in tech is likely to persist.However, whether tech can outperform other sectors hinges on earnings delivery, capital expenditure, order trends, and profitability along the AI supply chain.

US Treasuries represent the purest and most direct reflection of June CPI data. Following the CPI release, the market immediately reduced the probability of a July rate hikefrom 43% to 16%,which is precisely the repricing dynamic that bonds favor,but front-end/mid-short duration Treasuries outperformed the long end,as oil prices, term premiums, and a potentially higher neutral rate impose multiple constraints on the long end.US Treasuries can serve as a portfolio stabilizer, providing a hedge against tech positions.

Gold also reacted positively following the June CPI release,Back to around $4,054–$4,075 per ounceSince the second half of 2025, the 10-year real interest rate has shown a clear negative correlation with gold prices—A decline in real interest rates reduces the opportunity cost of holding gold, supporting gold price upside. butGold ranks behind tech stocks and U.S. Treasuries in terms of relative allocation priority, with near-term constraints including: the Fed is merely less hawkish rather than turning dovish; rebounding oil prices may not be purely bullish for gold; and gold lacks both the earnings-driven narrative of tech stocks and the direct policy linkage seen in U.S. Treasuries.

⚠️Risk Warning

Currently, attention should be paid to the risk that headline CPI in July could re-accelerate significantly due to a sharp rebound in oil prices, and that core CPI month-over-month could rise again above 0.3%. If both occur simultaneously, the allocation logic for both tech stocks and U.S. Treasuries will come under pressure, requiring continuous monitoring of the following variables:

Sources: Morgan Stanley, CNBC, Citi, Nomura, East Money

[Investment Advisory Information]

Yu Shilin, Licensed Representative, CE Number: ATQ882

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