Both before and after the release of the widely anticipated January C.P.I. report, the early stock index futures and then the indices themselves swung wildly in both directions as stocks kind of did their own thing without regard to what was said in the report (explanation to follow) and after all was said and done things ended wildly mixed.
For instance, after the 8:30am release of the report (see below for results) the Dow got as high as a gain of 170 points before crashing back down and as a result it opened lower, then rallied to an 86 point gain in mid-morning before reversing to the downside again with a 418 point decline at 12noon before coming off of those worst levels to finally end 156 points lower to 34,089. It was pressured by selling in CAT, HD, HON and TRV.
The S&P also rose sharply in the pre-market and then started lower as well before it rallied to a gain of 22 points in mid-morning before collapsing to its worst level of the session 42 points lower before settling into a narrow pattern in the afternoon to finally end with a closing decline of 1 to 4136.
The Nasdaq did the best of all with swings in both directions in the morning before being able to stay positive at the close with a 68 point gain up to 11,960. It was led on the upside by large advances in NVDA and TSLA and once again this begs the question -f rising interest rates (they did gain again today) are supposed to hurt those equities with the highest price/earnings ratio, then why where the best gains today put in by the two issues just mentioned? The answer seems to be that stocks go their own way without regard to the outside influences that “experts” attribute the way that they should go based on economic conditions.
The Russell 2000 Index of small stocks also ended virtually unchanged with a closing decline of 1 point down to 1940 while the VIX, continuing its strange narrow journey lately, dropped sharply down to 18.91 which is certainly unusual considering that the market was mainly lower and this also puts int into that support level in the 18’s so don’t be surprised if things start out lower today.
The action was more decisive in the bond market, where yields climbed as investors braced for the Federal Reserve to get firmer on interest rates to combat inflation.
The report was highly anticipated because inflation and the Federal Reserve’s response to it have been at the center of investor struggles for more than a year. Inflation has been cooling since last June’s peak and investors are trying to guess how quickly and smoothly a decline could happen, if ever, to the Fed’s 2% target.
Tuesday’s report showed that inflation slowed to 6.4% in January from its peak of 9.1% in June. The hope has been for a continuing slowdown to get the Federal Reserve to pause its hikes to interest rates and perhaps begin contemplating cuts to them.
Nearly half of January’s month-over-month inflation came from an area where Fed Chair Jerome Powell has said he sees easing pressure in the pipeline: housing, which makes up 40% of the core rate and other shelter-related prices.
But on the downside for markets, the improvement in inflation wasn’t by as much as economists expected. That could encourage the Fed to be more aggressive on interest rates than it has been saying. The Fed has indicated it envisions at least a couple more increases before holding rates at a high level for a while.
This inflation print served as a reminder to investors that the path to lower inflation is not as clear cut as previously thought and it is too early for the Fed to declare victory on inflation and as a result bond yields have been moving higher as for instance the 2-year yield has shot up to its highest level since November, partly as a result of the very strong January jobs report. It rose to 4.61% from 4.52% late Monday. It initially zig-zagged up, down and back again after the release of the inflation report. The 10-year yield rose to 3.75% from 3.70%.
All the worries about inflation and rates are hanging over a market that is already contending with a relatively lackluster earnings reporting season as for instance . Companies have been reporting weaker results as higher costs and interest rates eat into their profits.
QSR, which operates Burger King and Tim Hortons restaurants, fell after reporting weaker earnings than expected but GFS, MAR, CDNS and PLTR did well after their reports.
Earnings reports this week include: yesterday – GFS, PLTR, MAR, CDNS higher while Dow component KO and QSR were lower; today – ABNB, TRIP, GDDY, GNRC, ADI, TTD, RBLX higher and DVN, BIIB lower; tonight – Dow component CSCO plus SHOP, SAM, DNUT, ROKU, TWLO; Thursday – AMAT, HAS; Friday – DE.
Economic reports will be the main focus this week with: yesterday – the big one with January C.P.I., estimated to be up by 6.2% while the core rate is supposed to be at 5.4% and the numbers came in slightly higher than expectations at 0.5% for the month and 6.4% yearly while the core rate was 0.4% monthly and 5.6% year over year, January small business index optimism fell to 90.3 and remains below its long-term average of 98; today – January retail sales were higher by 0.3% and excluding autos and gas were up by 2.6%, January industrial production was unchanged and capacity utilization fell to 78.3% which was the lowest since May 2021, February NY State Empire Manufacturing Survey fell by 5.8 which was the lowest since November, NAHB Homebuilder February Sentiment rose by 7 to 42, which was the second straight higher month; Thursday – January P.P.I., January housing starts, weekly jobless claims; Friday – January L.E.I.
Donald M. Selkin
Chief Market Strategist
Don Selkin is the Chief Market Strategist at Newbridge Securities Corporation, member FINRA/SIPC and provides the Fair Value analysis for CNBC each morning. The commentary provided in this Market Letter is intended to provide our current or potential customers with timely market analysis and should not be considered a research report. This Market Letter may contain, and is limited to: Discussions of broad based indices; Commentaries on economic, political or market conditions; Technical analysis concerning the demand and supply for a sector, index or industry based in trading volume and price; Statistical summaries of multiple companies’ financial data, including listings of current ratings; and, recommendations regarding increasing or decreasing holdings in particular industries or securities. This Market Letter does not make a financial or investment recommendation or otherwise promotes a product or service of the firm. This Market Letter contains only news, facts, and commentary on information previously reported from a news source believed to be accurate and reliable by the author. These news sources include the following: {Bloomberg Financial, Reuters, and Associated Press}. It is possible that at any given point in time, the author, Newbridge Securities, or one or more of its employees or registered individuals associated with Newbridge Securities, may hold a position, either long, or short, as well as options, bonds or other instruments in the companies mentioned in this report.