The futures markets rose rapidly and are now trading in the green after the release of the Core and non-core Consumer Price Index figures. Core inflation was up 0.4% month over month in April (up 4.9% year over year). Additionally, non-core inflation, excluding volatile food and energy prices, was up 0.4% in April (up 5.5% year over year). These figures showed that inflation is continuing to slow, and support expectations of a Federal Reserve pivot toward less restrictive monetary policy. Most traders are projecting that no further interest rate increases will be required following the rate hike at last week’s Federal Reserve meeting. Traders bought equities following release of the inflation numbers, suggesting a solid start to the trading day.
The market indices traded negatively yesterday as a slew of recent earnings reports hit the tape. Several stocks recorded large drops. Additionally, reports of little progress in the U.S. debt ceiling negotiation spooked traders. The market indices slid throughout much of the day, ending not far from their daily lows. Overall, the S&P 500 fell 19 points (down 0.46%), the NASDAQ was off 77 points (down 0.63%), and the Dow Jones Industrial Average declined 57 points (down 0.17%). Market breadth was slightly negative, as decliners outpaced advancers by a 1.5-to-1.0 ratio. Industrial stocks were among the best performers, bolstered by a strong performance from key component Boeing (BA), which secured a large order from Ireland’s Ryanair for up to 300 planes. Meanwhile, materials equities were among the weakest performers.
Oil prices rose yesterday, breaking a recent slide as the commodity became oversold. Elsewhere, U.S. Treasury bond yields were mixed, with many long-term yields falling and short-term ones rising. The yield curve is heavily inverted, with short-term rates well above long-term ones, which usually portends a coming recession. The Chicago Board Options Exchange Volatility Index, (VIX), more commonly known as the fear index, rose rapidly yesterday as traders bought more options protection.
Looking ahead, several economic reports will be released in the days ahead. These include the Bureau of Labor Statistics Producer Price Index and continuing and initial jobless claims on Thursday. On Friday, the import price index and the University of Michigan Preliminary Consumer Sentiment Index for May are on the docket. Additionally, several regional Federal Reserve presidents will give remarks on the economy. Upcoming quarterly earnings reports will include Dow-30 component Disney (DIS) after the bell today. Overall, we think most eyes will be on inflationary data and news about U.S. debt ceiling negotiations. - 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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