A sharp rise in April consumer prices put stocks under more pressure early Wednesday, but the data really shouldn’t come as much of a surprise.
We’re having an initial reaction now where everything sells off and rates are pushing higher, but we’ve already seen hints of this coming from earnings. Based on what executives said, it would be hard to believe if there wasn’t some inflation pressure developing and showing up in today’s number.
This is one report, so it’s nothing to lose our minds over, but it backs up what we’ve been hearing. To recap, the consumer price index (CPI) rose 0.8% last month, compared with Wall Street’s consensus for 0.2%. The CPI is up 4.2% year-over-year. These are big numbers, but remember that last year set a low bar considering the struggles with Covid at the time.
The S&P 500 Index (SPX) was already lower in pre-market trading before the data hit, and immediately dived when CPI came out. The 10-year Treasury yield also ticked up a couple basis points to just under 1.65%. It was below 1.5% at one point last week, so this is a pretty big move. Volatility also edged up after the news. Higher rates might have a chance of helping the Financial sector today if they can hold the line against what looks like a lot of pressure coming from the rest of the market.
Rising inflation numbers over time might get the Fed worried, but Fed Chairman Jerome Powell has made it clear over and over that we should expect inflation and that it will be temporary. With the easy comparisons to a year ago continuing over the next few months, it might not be until Q4 when we get a true picture of the price situation.
CME Fed funds futures now show a 9% chance of a rate hike by the end of the year, up from 7% earlier this week. Historically, readings like those don’t show much worry about increasing rates. However, if inflation continues to ramp up, it might put more focus on when the Fed might start “tapering” some of its bond-buying.
The intense inflation focus heads into day two tomorrow when the government releases the April producer price index (PPI). Circling back, the March report might have given many investors an unpleasant shock, rising a full 1% month over month. Analysts had expected decent gains, but not that dramatic.
For tomorrow’s April PPI, the Wall Street consensus, according to Briefing.com, is 0.3% for the headline PPI and 0.4% for core, which excludes food and energy. Those aren’t low numbers, but remember the comparison is against the big gain in March. For more on what to watch beyond the headlines in PPI, see below.
Stepping away from prices, the Tech slide that briefly halted late yesterday appears ready to resume this morning following weakness overnight in the FAANG stocks. Semiconductor shares also came under pressure in overnight trading. On the charts, Tech is beginning to show some technical weakness, which may weigh on these stocks as the day continues.
Having said that, yesterday’s rally in the Nasdaq (COMP) was nothing short of incredible. Some of the recovery may have reflected “buy the dip” mentality (see more below). It’s going to be worth checking to see if that happens again on today’s early weakness.
Asian and European markets were mixed overnight, while crude resumed its climb and is now above $66 a barrel.
Inflation? Taxes? A Combination? Struggles Continue
If it seems like the market just can’t get going lately, that’s because it can’t. In general, there’s this thought that inflation may rear its ugly head. We see a little bit higher rates, not significantly, but a bit. And this struggle between value and growth continues at the same time.
It’s really a kind of tale of two cities, if you will, when we saw ...Full story available on Benzinga.com
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