This morning, the attention of Wall Street is once again on the U.S. inflation situation and its impact on the Federal Reserve’s 2025 monetary policy course. At 8:30 A.M. (EST), the Labor Department reported producer (wholesale) price data for the month of January. Specifically, the Producer Price Index (PPI) and the core PPI, which excludes the energy and food components, increased 0.4% and 0.3%, respectively, on a month-to-month basis. On a one-year basis, the PPI and the core PPI rose 3.5% and 3.6%, respectively. Overall, the report indicated that inflation at the producer level remains very sticky and is still running well above the Fed’s target level of 2.0%. In a separate report, the Labor Department reported that initial weekly claims for the week ending February 8th totaled 213,000, which was down 7,000 from the prior-week’s revised figure.
Treasury market yields, which jumped following yesterday’s Consumer Price Index (CPI) report, eased a bit following the release of the PPI and claims data. The equity futures, which were relatively unchanged heading into the economic reports, are now in positive territory following today’s data from the business beat.
We did get some corporate earnings news since the close of trading yesterday afternoon. Shares of Dow-30 component Cisco Systems (CSCO) jumped in extended-hours trading after the tech company posted strong results for the latest quarter, with the company’s bet on artificial intelligence (AI) starting to pay off. The stock of AppLovin (APP), which was up more than 600% in 2024, is jumping again after the company beat expectations on both the top and bottom lines and raised its guidance for the current quarter. Conversely, the shares of The Trade Desk (TTD) are down sharply in pre-market action after the company posted mixed results, including a miss on the revenue line. That, along with lighter-than-expected guidance for the current quarter, is pressuring the stock.
Outside of the technology arena, shares of MGM Resorts International (MGM) are popping after the hotel and gaming company reported strong quarterly results and upped its near-term guidance. The company posted earnings per share of $0.45, which beat the consensus forecast by more than 30%. Financial services company Robinhood Markets (HOOD) reported a surge in quarterly profits, boosted by post-election trading frenzy, and the stock is up sharply in response.
The major equity averages turned in a volatile performance yesterday following the release of the January CPI data, which showed that inflation at the consumer level remains quite elevated. Specifically, the January Consumer Price Index (CPI) and the core CPI, which excludes the more-volatile food and energy components, rose 0.5% and 0.4%, respectively, on a month-to-month basis. The increase in the headline figure was the highest rate since June of 2022. On a 12-month basis, the CPI and core CPI increased 3.0% and 3.3%, respectively. This put notable downward pressure on stocks in the first half of yesterday’s session, but the major indexes did retrace a good deal of the losses by the closing bell, finishing well off their lows and in the case of the NASDAQ Composite with a modest gain. The NASDAQ Composite gained its footing following comments from Federal Reserve Chairman Jerome Powell before the House of Representatives. Chairman Powell said the Fed will likely take a cautious near-term stance on monetary policy, but did soothe the market some when he said: "I would say we're close, but not there on inflation."
Our sense is that with growing uncertainty about both near-term fiscal and monetary policies, choppy sessions like we witnessed yesterday may be more the norm than the exception this year following two strong years for equities in 2023 and 2024. It is worth noting that the global equity markets have reacted swiftly to tariff comments from President Trump over the last fortnight, and later today the Trump Administration is expected to announce a series of reciprocal tariffs. In this environment, we continue to recommend that investors focus on the stocks of high-quality companies that have a history of generating steady earnings and cash-flow growth. These equities are less susceptible to wide swings in their share prices. Most of these stocks are either ranked 1 (Highest) or 2 (Above Average) for Safety by Value Line and the list can be easily accessed with the company’s stock-screening capacities on www.valueline.com.
The recent hotter-than-expected CPI and PPI data are giving a boost to the price of gold, which is viewed as a hedge against inflationary pressures. Year to date, the price of the precious metal is up more than 12% on the Commodity Exchange (COMEX), with the price approaching the $2,950-per-ounce mark this morning. - William G. Ferguson
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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