05|18|2021

Inflate This! | May 14, 2021

AUTHOR: Jason Roque, CFP®, APMA®, AWMA®
TITLE:   Investment Adviser Rep – CCO
TAGS: S&P 500, NASDAQ, CPI, PPI, Oil, Retail Sales, Sentiment
  

Markets lost ground for the second week. Does this say more about the last two weeks or the week ahead?

Monday                       S&P 500 0.11% | NASDAQ 0.41%

Markets opened the week in a muted tone. There was very little movement as Consumer Price Index (CPI) data was awaited on Tuesday.

Tuesday                        S&P 500 1.12% | NASDAQ 1.54%

CPI data for February showed inflation inching up slightly. Markets opened in the red on the news, but an earnings beat by Oracle allowed equities to march higher.

Wednesday                 S&P 500 0.19% | NASDAQ 0.54%

Crude oil inventories fell when a surplus was expected, which will further support higher prices for energy. Interest rates climbed on the back of the higher than expected CPI data from Tuesday. Growth stocks lagged as the data implies the Federal Reserve Board (FRB) will be less likely to cut rates.

Thursday                     S&P 500 0.29% | NASDAQ 0.30%

The Producer Price Index (PPI), a wholesale inflation gauge, rose in February to 1.6%. Retail sales advanced less than expected and initial jobless claims remained benign. A strong jobs market with firming inflation does not bode well for future rate cuts. Markets sold on the news, though not aggressively, as hope remains for FRB rate cuts later in the year.

Friday                          S&P 500 0.65% | NASDAQ 0.96%

Consumer sentiment is projected to fall to 76.5 in March from 76.9 in February. While lower, February and March are the first readings in the 70’s since August of last year. The week closed out on a sour note as commodity prices rise with inflation data. Further concerns mount that the inflation fight may have longer to go before a rate cut.

Conclusion                  S&P 500 0.13% | NASDAQ 0.70%

This is the first back-to-back losing weeks for the market in 2024. This leads to an FRB meeting week where guidance about potential future rate cuts will be hotly watched. Not only is the FRB meeting next week, but there is very little in the way of economic data for the week. This puts all the more focus on the FRB. 

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Markets shed weight on inflation data last week, recovering ground late. What caused this swing?

Monday

Monday’s activity was very much still a reaction to the jobs report released the prior Friday. For most of the day markets floated near the highs only to shed value late. Focus shifted to potential supply constraints as a result of the colonial pipeline (CP) ransomware situation. With that shift in focus, the S&P 500 ended the day down 1%.

Tuesday

The S&P 500 shed another .87% on Tuesday. Job openings increased to 8.1M and the CP pipeline remained out of commission. That closure dominated momentum on the markets. Energy prices soared, but equities as a whole struggled.

Wednesday

Inflation data out Wednesday morning roiled the markets! Markets have been pricing in higher inflation as the re-opening trade has been under way for several months now. The repricing continued Wednesday. Core Consumer Prices (Inflation proxy) jumped from 1.6% in March to 3.0% in April. The strong reading raised concerns that we are about to undergo a wave of high inflation. The S&P 500 fell 2.14%, however the NASDAQ led the losses as 2.65%.

Thursday

Initial jobless claims fell to a pandemic low of 473K. This upbeat reading seemed to allow calmer heads to prevail on Thursday as markets staged a rebound.

Friday

In a move that was clearly ‘bad news is good news,’ weak retail sales allowed markets to close higher. The weaker reading encouraged investors that perhaps April’s inflation reading will not be the norm going forward.

Conclusion

There is much focus on inflation right now. Understandably so, supply lines are choked off, employees are hard to come by, and people are starting to get out and spend money. From the semiconductor shortages, a depleted rental fleet from a sell off during the pandemic, to lumber bottleneck. Every where you turn there is evidence of price hikes. All that said, the inflation concerns do not appear to be long term. As workers come back, supply constraints will improve, and these price increases will likely prove temporary. A sign of prices adapting to current circumstances rather than long term inflation increases.

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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.