Stock futures rallied from breakeven levels following the release of the U.S. Bureau of Labor Statistics’ Producer Price Index. This report showed a sharp decline in inflationary pressures, as producer prices declined 0.5% month over month in March (up 2.7% year over year), while core prices, non-inclusive of volatile food and energy, were off 0.1% (up 3.6% year over year). These figures showed a considerable drop in cost inflation. Traders rushed to buy equities following this news, as expectations of the Federal Reserve easing monetary policy increased. Elsewhere, initial jobless claims rose 11,000 to 239,000, rising to the highest point since mid-January. In earnings news, Delta Air Lines (DAL) recorded a loss during its recent quarter, but its management expects to reach profitability in the summer, sending its stock price higher. Overall, these developments increased demand for stocks and suggested a strong start to the trading day.
The stock market traded in the green in the early portion of yesterday’s trading session, buoyed by the Consumer Price Index (CPI) report showing that inflationary pressures were easing. Prices were up 5.0% year over year in March, slowing from 6.0% in February. Traders took this positively, expecting the Federal Reserve to stop tightening monetary policy through interest rate hikes. However, fears crept in about a weakening of the broader economy, causing traders to sell in the afternoon. Overall, the S&P 500 fell 17 points (down 0.41%), the NASDAQ finished off 103 points (down 0.85%), and the Dow Jones Industrial Average declined 38 points (down 0.11%). Market breadth favored the decliners over the advancers by a 1.2-to-1.0 ratio. Consumer discretionary stocks were among the worst performers, while industrial equities were among the best.
In commodity news, oil prices continued to rise as traders continued to price in declining supply following an announced cut in production by 1.16 million barrels daily from the Organization of the Petroleum Exporting Countries (OPEC). Elsewhere, U.S. Treasury bond yields were mostly higher yesterday, though some of the longer-term ones fell. The yield curve remains heavily inverted, with short-term rates higher than long-term ones, which usually portends a coming recession. The Chicago Board Options Exchange Volatility Index, or VIX, fell through much of the early trading session but rose rapidly in the final portion of the day to end near breakeven levels.
Several economic reports will be released tomorrow, including U.S. Retail Sales for March and the U.S. Bureau of Labor Statistics’ Import Price Index. Additionally, the start of earnings season should take off in full on Friday, with Dow-30 components JPMorgan (JPM) and United Health (UNH) reporting before the bell. Several large financial institutions will release quarterly data Friday, and traders will likely look at these reports more closely, given recent bank failures. - 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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