The attention of Wall Street is on the U.S. economy and the latest fiscal policy news emanating from the White House this morning, as fourth-quarter earnings season is near conclusion. At 8:30 A.M. (EDT), we received a few important reports on the economy, including the latest Producer Price Index (PPI) data from the Labor Department. That release showed the PPI and the core PPI, which excludes the food and energy components, were unchanged and down 0.1%, respectively. The price data were much cooler than the prior month. On a one-year basis, the respective CPI and core CPI climbed 3.2% and 3.4%, also indicating some easing in the pace of price growth at the wholesale level.
The PPI report was good news for the Federal Reserve, which has been worried about inflation accelerating again, so much so that it will likely keep the federal funds rate steady in the first half of this year as it assesses the impact of the Trump Administration tariffs on price growth (more below). Treasury market yields relatively unchanged on the PPI data and the equity futures, which were mixed heading into the report, are now pointing to a nominally lower opening when trading kicks off stateside.
We also received the latest initial unemployment claims data from the Labor Department. The release showed that unemployment insurance for the week ending March 8th totaled 220,000, was down 2,000 from the prior week, and still indicative of a tight labor market. In recent weeks there have been building concerns on Wall Street that the labor market is softening. However, the claims data, along with last week’s report showing that the nation added 151,000 in February and the nation’s jobless rate just inching up slightly, suggest that the labor sector remains tight and resilient. This is welcomed news for the Federal Reserve, which has kept monetary policies restrictive enough to continue tackling inflation.
The companion Consumer Price Index (CPI) report yesterday quelled some fears on Wall Street, at least for the moment, that inflation was notably reaccelerating, which has been a near-term worry for the market, along with the tariff announcements coming from the White House. Specifically, both the CPI and the core CPI, which excludes the more-volatile food and energy components, increased 0.2% on a month-to-month basis. The pace of price growth at the consumer level was cooler than expected and down notably from the January-quarter figures. On a 12-month basis, the CPI and core CPI rose 2.8% and 3.1%, respectively, both showing a modest deceleration in inflation from the January readings. Not surprisingly, the higher-growth technology stocks, which have been under significant selling pressure lately, rallied some on the news, with the NASDAQ Composite finishing 212 points to the upside. The S&P 500 Index, led by a rally in some of the recently out-of-favor technology stocks, rebounded by 27 points. That said, the S&P 500 Index is still tracking for its fourth-straight negative week.
Overall, the U.S. equity market remains quite volatile, with the CBOE Volatility Index (or VIX), also known as the “fear gauge,” trading at a level suggestive that the market is oversold following some rough trading days so far in March. This unevenness has been fueled by worries about the series of trade tariffs from the Trump Administration against both adversaries and allies since February 1st. The announcement of wide-ranging reciprocal tariffs against trading partners around the world, which are set to take place on April 2nd, and retaliatory measures from the nations the Trump Administration are targeting also has been a headwind for stocks. Investors are worried that the trade wars will push prices for goods and services higher, and lead to a slowing in the pace of economic growth both in the United States and overseas. The announced tariffs on aluminum and steel imports yesterday weighed on the performance of the Dow Jones Industrial Average, which consists primarily of stocks of multinational companies. The Dow Jones retraced strong early gains on the CPI news and then some during yesterday’s bifurcated trading session, finishing 83 points in the red.
In this environment, we recommend that investors continue to focus on the stocks of good-quality companies that have a long history of producing steady earnings and cash flow growth. Many of these stocks are either ranked 1 (Highest) and 2 (Above Average) for Safety by Value Line, and can be viewed with a subscription to The Value Line Investment Survey. For more information, visit valueline.com. – William G. Ferguson
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.
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