Strength in Numbers | August 12, 2022 | FFS

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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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Markets rose for the week. Is the strength sustainable, or in bear market form, will the numbers fade?

Monday S&P 500 0.10% | NASDAQ 0.10%

Tech stocks weighed on the Monday trade as Chip maker Nvidia gave negative forward guidance. Additionally, trading signaled a more aggressive Federal Reserve Bank (FRB) off the back of the strong July Jobs report.

Tuesday S&P 500 0.42% | NASDAQ 1.19%

Markets opened down on the day and stayed there. They never deviating too far from where they started. NASDAQ led the losses lower. After three weeks of gains, markets were taking a breather leading up to Consumer Price Index (CPI) data released Wednesday.

Wednesday S&P 500 2.13% | NASDAQ 2.89%

CPI data surprised to the lower bound. Expectations were for inflation to fall from 9.1% to 8.7%. It actually came in at 8.5%. Core CPI (which strips out food & fuel) held steady at 5.9% when it was expected to rise to 6.1%. The weaker than expected CPI data yielded strong performance from the markets. The more inflation concerns subdue, the less interest rate hikes from the FRB are expected.

Thursday S&P 500 0.01% | NASDAQ 0.58%

Producer Price index (PPI) surprisingly fell to 9.8% in July from 11.3%. This data is usually higher than CPI data so while elevated, the reduction was welcome. Markets opened in the green but faded to flat by the close.

Friday S&P 500 1.73% | NASDAQ 2.09%

Consumer Sentiment projected to surprise to the upside this month. The estimate has risen to 55.1 where 48.4 was expected. Both readings are low, but a 5-point increase is encouraging. Markets rose dramatically to close the week.

Conclusion S&P 500 3.26% | NASDAQ 3.07%

The rallies on Wednesday and Friday brought us to 4 straight weeks of gains for the market. It is to be remembered that this is still a bear market. While the gains have been nice, they could be notoriously poached quickly. Conversely the wide number of positions in the green does signal good underlying strength to the current rally.