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Falling chicken prices signal relief from inflation

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

Falling chicken wing prices are a good sign for the stock market as it shows that inflation is slowing, by Fundstrat Tom Lee said in a Friday note.

Chicken wing prices have fallen 62% from their peak to levels not seen since 2019. “That’s not ‘chilling’ inflation… It’s outright deflation. The price drop to 2019 levels is a 3-year decline,” Lee said.

The sharp decline in chicken prices could help convince investors that inflation is not as rigid as some feared. If the prices of other goods and commodities follow the path of chicken wings, it means that the Federal Reserve has the opportunity to walk away from its outsized interest rate hikes.

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

Also, it’s not just chicken prices that are falling. The August Philadelphia Fed Manufacturing Business Outlook Survey showed that prices paid and prices received both fell significantly from the previous month.

And perhaps more importantly, the housing market is showing signs of weakening with prices falling and home sales slowing.

“Similar to other data, [Redfin] the data shows that house prices are weakening. It reflects the simple fact that with higher mortgage rates, tighter lending and less certainty, sale prices need to come down,” Lee said.

But that doesn’t mean a repeat of the housing crash is upon us, according to Lee, because overall housing construction has been below long-term averages and represents a smaller part of the U.S. economy than in 2008.

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

“Cooling housing should lead to lower CPI. There’s a lag, but … as housing cools, so will the housing-related CPI,” Lee said.

Ultimately, falling prices in everything from chicken wings to houses reinforce the idea that inflation has peaked and should continue to decline in the months ahead.

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