Transitory...| July 16, 2021 | FFS | Monument, CO

The week was all about inflation data, but have we inflated its importance?

Monday S&P 500 0.04% | NASDAQ 0.03%

Markets were little changed on the day. There was very little economic news out before the bell on Monday. The week will likely be sharply focused on Wednesday when we get the updated figures for March inflation. The report is expected to show an increase from February.

Tuesday S&P 500 0.14% | NASDAQ 0.32%

Small business sentiment slipped in March to the lowest level since January 2013! Even still, markets advanced ahead of inflation data on Wednesday. Growth stocks out-performed which signals that an increase of inflation data would likely not hamper growth stock leadership. This is important because the rate cuts expected later this year would favor growth stocks most.

Wednesday S&P 500 0.95% | NASDAQ 0.84%

Consumer Price Index (CPI) information showed that inflation has stopped cooling. A 0.1% reading was replaced with a 0.4% reading. The main culprits were transportation services, energy, and home services. The markets moved sharply lower, but likely on the Federal Reserve Board (FRB) minutes release, rather than on CPI data. FRB Minutes showed concerns that inflation was stagnating, endangering the likelihood of the FRB cutting rates later this year.

Thursday S&P 500 0.74% | NASDAQ 1.68%

Producer Price Index (PPI), which is a proxy for wholesale inflation rose less than expected. Initial jobless claims fell on the day supporting a strong job market. The weaker than expected inflation data led to a bounce back rally by markets. Little was changed about rate cut expectations moving forward however, given the FRB minutes from March.

Friday S&P 500 1.46% | NASDAQ 1.62%

Michigan Consumer Sentiment is projected to slip, but remains in the high 70’s. Financial firms got earnings season underway on Friday and they did not impress. The slide on Friday solidified a down week for equities. The Nasdaq led markets lower on the day, but its Thursday rebound mitigated losses for the week.

Conclusion S&P 500 1.56% | NASDAQ 0.45%

The week ended well into the red. The fall represented the worst week for the S&P 500 since January. In January the focus was on the markets accepting that the FRB may only cut rates three times this year. This time it is on the realization that perhaps the FRB may not cut rates at all. As of now investor expectations are that the FRB will cut rates one, maybe two times (September and December). The meeting in two weeks should provide more clarity. Even with this change to rate cut expectations, it will be interesting to see what action the FRB takes with Quantitative Tightening. If they do start to slow the selling bonds that should provide some relief.

~ Your Future… Our Services… Together! ~

Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:

Facebook | Twitter | LinkedIn

FOR MORE INFORMATION:

If you would like to receive this weekly article and other timely information follow us, here.

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.

Markets shed weight for the first week in four. Is there reason to be concerned or is it transitory…

Monday

Markets opened the week on a strong note as the S&P 500 rose 0.4%. In fact, all major equity indices rose. Expectations for companies to deliver on Q2 earnings are high. The season gets underway in earnest this week.

Tuesday

The S&P 500 lost what ground in gained on Monday, on Tuesday. The Consumer Price Index (CPI), a proxy for inflation, expanded more than expected. The core figure (which removes fuel and food) increased 4.5% over the last 12 months. Fears of persistent inflation gripped the markets Tuesday.

Wednesday

Inflation concerns persisted as the S&P 500 gained, but small cap stocks (the darling of the re-opening trade) faded. Federal Reserve Board (FRB) Chair Powell was testifying before congress and did his best to assuage investors’ fears about inflation.

Thursday

Markets lost on Thursday as the FRB made mention that it may increase interest rates sooner than investors are anticipating. The S&P and the NASDAQ, both lost as the Dow gained.

Friday

The S&P 500 lost ground on Friday (0.8%) as concerns rose regarding the stability of this new expansion. Michigan Consumer Sentiment was projected to fall 5 points, bringing it down to a level not seen since February. The hesitation as well as rising inflation concerns are looking like they could curb consumers. Less consumption, means less profits…

Conclusion

Transitory, transitory, transitory… The word of the year, as the FRB is messaging that they see the current inflationary pressures as… transitory. They expect it to stay confined to the next 12 months or so. The persistence of COVID globally, may derail ‘transitory’. The US is largely an importer of goods. Even if we get a grip on COVID domestically, international struggles will hamper supply lines and cause inflation to persist.