The futures market is trading in the red, following a choppy session in the market yesterday. A key economic indicator was released showing retail sales increased 3% year over year in January, beating an expectation of 1.9%. When excluding autos, sales were up 2.3%. Additionally, the Empire State Manufacturing Survey from the Federal Reserve Bank of New York showed a reading of -5.8, also beating expectations. Overall, these readings show the economy is continuing to perform more strongly than expected. The markets fell on this data, which implied that the Fed would have to tighten the monetary supply for longer. Overall, the weak futures market suggests a lackluster start to the trading day.
The stock market trading yesterday was impacted by the Bureau of Labor Statistics Consumer Price Index (CPI) report, which showed that consumer prices were up 0.5% in January or 6.4% year over year. Core prices, which exclude volatile food and energy, were up 0.4% month over month or up 5.6% year over year. This upswing was driven by price increases in housing, food, and energy, showing that inflation has been stickier than previously thought. Traders have been expecting at least one more interest rate hike, but are tapering expectations of rate cuts later in the year. Investors should note that the Bureau of Labor Statistics has recently changed its methodology, giving the shelter category a higher weighting while energy's weightings were reduced. Overall, the S&P fell 1 point (down 0.028%), and the Dow Jones Industrial Average finished down 157 points (down 0.46%). However, the NASDAQ bucked the trend and climbed by 68 points (up 0.57%). Market breadth was slightly negative, as decliners outpaced advancers by a 1.1-to-1.0 ratio. Consumer discretionary stocks were among the best performers (up 1.2%), while REITs were among the weakest (down 1.04%).
In commodity news, oil prices fell yesterday, as U.S. shale drilling is slated to reach record production in March, suggesting that the supply is exceeding demand. Elsewhere, U.S. Treasury bond yields were pushed higher as traders moved away from the safe-haven asset. Short-term yields are still much higher than long-term ones, and this inversion has historically indicated a coming recession. This spread between yields of 2-year notes and 10-year securities hit its widest point, beating levels near the October stock market trough. The Chicago Board Options Exchange Volatility Index, or VIX, fell yesterday as the amount that traders were willing to pay for options protection declined.
Several economic reports will be released in the days ahead. These include initial and continuing jobless claims, housing starts and building permits, and the Philadelphia Fed Manufacturing Survey on Thursday. The import price index and index of leading economic indicators are due on Friday. Additionally, several hundred companies will report quarterly results and provide earnings guidance for the year in the days ahead. This includes the Dow-30 component Cisco Systems (CSCO) after today's closing bell. Overall, we think most eyes will be on the economy's state and the strength of consumer spending. - John E. Seibert III
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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