The futures markets are trading down about 1% on a relatively hot reading released for the Consumer Price Index (CPI). On a year-over-year basis the CPI was up 3.0%, while the “core” reading excluding food and energy prices increased 3.3%. Bond yields increased following the inflation news, and the relative value of the dollar rose. This unexpected rise in inflation and its subsequent impact on the market suggests a weak start to the trading day.
The stock market started negatively yesterday, with all three major indices in the red at the open, as the market digested the latest tariff news from the White House. Additionally, Federal Reserve Chairman Jerome Powell stated in testimony to Congress, “We do not need to be in a hurry to adjust our policy stance.” However, once the market digested this news, it bid up stocks throughout the day and a few indices moved into the green. Overall, the S&P 500 increased two points (up 0.03%), and the Dow Jones Industrial Average rose 123 points (up 0.28%). However, the NASDAQ traded lower on the day and fell 70 points (down 0.36%). Market breadth was rather even on the day, with neither advancers nor decliners outpacing the other by a large amount. Consumer staples were amongst the best performers yesterday, aided by the strong performance of soft drinks maker Coca-Cola (KO), which reported strong organic growth during the quarter. On the other hand, consumer discretionary stocks were amongst the weakest performers of the day. This suggests that traders were placing more defensive bets on the market.
In commodity news, oil prices rose rapidly yesterday, as traders priced in new tariffs on steel and aluminum, while cooler weather across North America and Europe is likely to drive fuel usage higher. Elsewhere, U.S. Treasury bond yields rose slightly yesterday, though bonds with longer durations had greater increases in their yields, suggesting traders were selling more of their long-term exposure. After reaching an all-time high on Monday, gold prices retreated, giving back a portion of the gains. The Chicago Board Options Exchange Volatility Index, or VIX, also known as the fear indicator, rose slightly yesterday as traders priced in more options demand.
A slew of economic reports will be released in the days ahead. These include the core- and non-core Producer Price Index (PPI) and initial jobless claims on Thursday. On Friday, the import price index, U.S. retail sales for January, and business inventories will be released. Additionally, a few hundred companies will report quarterly results after the close today, and on Thursday and Friday, though many of these hold smaller market capitalizations. That said, we are well past the halfway point of earnings season, suggesting the broader markets will likely focus on inflation data. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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