There has been a lot of corporate news since yesterday’s close. Most of it relates to earnings reports.
Cisco Systems (CSCO), Roku (ROKU), Zillow Group (ZG), Crocs (CROX), and Twilio (TWLO) are among the winning standouts in terms of post-report reactions. Shopify (SHOP), Boston Beer (SAM), Paramount Global (PARA), Toast (TOST), and Datadog (DDOG) are among the losing standouts. In other words, the response to earnings news has been mixed.
There has also been another large slate of economic data.
- The January Producer Price Index (PPI) was up 0.7% month-over-month (Briefing.com consensus 0.4%) following an upwardly revised 0.2% decline (from -0.5%) in December. Core-PPI, which excludes food and energy, was up 0.5% month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.3% increase (from 0.1%) in December. On a year-over-year basis, PPI was up 6.0%, versus 6.2% in December, and core-PPI was up 5.4%, versus 5.8% in December.
- The key takeaway from the report for the market is that headline inflation was hotter than expected on a monthly basis. That will stoke worries about inflation pressures persisting at higher levels for longer than expected — and the Fed keeping rates higher for longer — even though there was improvement on a year-over-year basis.
- January housing starts declined 4.5% month-over-month to a seasonally adjusted annual rate of 1.309 million (Briefing.com consensus 1.355 million) from a downwardly revised 1.371 million (from 1.382 million) in December. Building permits increased 0.1% month-over-month to a seasonally adjusted annual rate of 1.339 million (Briefing.com consensus 1.350 million) from an upwardly revised 1.337 million (from 1.330 million) in December.
- The key takeaway from the report was the lack of growth in both single-family starts (-4.3%) and permits (-1.8%), which is a reflection of the adverse impact of rising interest rates and ongoing inflation pressures that are crimping builders’ willingness to build new homes and buyers’ willingness to purchase new homes due to affordability constraints.
- Initial jobless claims for the week ending February 11 decreased by 1,000 to 194,000 (Briefing.com consensus 203,000). Continuing jobless claims for the week ending February 4 increased by 16,000 to 1.696 million.
- The key takeaway from the report is that the persistence of initial claims below 200,000 reflects a very tight labor market, and a reluctance on the part of most companies to cut their workforce, which will continue to drive worries at the Fed about tight labor market conditions feeding into sticker wage-based inflation pressures.
- The Philadelphia Fed Index for February dropped to -24.3 (Briefing.com consensus -8.0) from -8.9 in January, with the New Orders Index slipping to -13.6 from -10.9 and the Prices Paid Index increasing to 26.5 from 24.5.
- The key takeaway from the report is that the overall number is the lowest since May 2020 and that firms generally expect prices to moderate in the next six months.
The initial response to the economic news has not been mixed like the initial response to the earnings news was. On the contrary, it has been negative in both the stock market and the Treasury market, with the former feeding off the latter.
Prior to the economic data releases, the S&P 500 futures were down about 14 points. Currently, they are down 47 points and are trading 1.2% below fair value. The Nasdaq 100 futures are down 180 points and are trading 1.4% below fair value, and the Dow Jones Industrial Average futures are down 283 points and are trading 0.8% below fair value.
The 2-yr note yield popped from 4.60% ahead of the reports to 4.67%, whereas the 10-yr note yield jumped from 3.79% to 3.83%.
The concern is that the PPI and initial claims data, along with the recent January employment, ISM Services, and CPI data, will keep the Fed from believing it can pause its rate hikes soon. Furthermore, it will push out expectations for when the Fed might even entertain the idea of a rate cut.
Those same concerns have been festering since the release of the January employment report, yet the stock market has always bounced back so to speak from its worst fears this year. Today, its confidence will be put to the test as the continued rise in interest rates will continue to shed light on extended valuations and some complacent attitudes.
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Originally Posted February 16, 2023 – Economic data putting bullish conviction to the test
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