Nothing to See Here... | December 31, 2021

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.

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Nothing to see here. Markets jumped out to open the week and then did a whole lot of nothing…

Monday

The Santa Claus rally got under way Monday morning. There were hundreds of Christmas eve flights cancelled due to Omicron. These should have led to dampened investor moods as it could signal the potential for a shutdown. They did not; the S&P climbed more the 1% to open the week.

Tuesday

The rally from Monday did not sell off, but it also did not advance. The trade activity on Tuesday was decidedly sideways as the S&P 500 lost 0.1%. This came as trading volume continued to be light amidst the holidays.

Wednesday

Trade was boring again on Wednesday as markets rose marginally. The S&P 500 rose a whopping 0.11%. Again, trading volumes were light, and the news feed was practically non-existent.

Thursday

Markets soared to open the week and made the remainder of the week boring as markets pretty much remained little changed on Thursday. The S&P 500 fell 0.28%.

Friday

The continued trend of light trading persisted. We expect this to change next week as traders get back to work. Movement was narrow across the day with the S&P 500 little changed on the day.

Conclusion

The opening day of the week did not set the tone for the week, but it did set the desired rise. This was evident by the minimal move throughout the remainder of the week. Granted, news was light. However, movement would have been more pronounced had there been more news to trade on. The S&P 500 ended up gaining 0.68% for the week and 26.89% for the year.