Fuggedaboutit

Remember the sell-off that took place Tuesday after the January CPI report? Yeah, well, fuggedaboutit. The S&P 500 and Russell 2000 have — and the Russell 2000 had a lot of fuggetting to do considering it declined 4.0% on Tuesday.

When yesterday’s closing bell rang, though, the Russell 2000 had recouped everything it lost in that sell-off and then some. The same held true for the S&P 500. The Dow Jones Industrial Average and Nasdaq Composite are just about there, but regardless, their sizable rebounds suggest the CPI air pocket is a distant memory.

The question now is, can the market fuggedabout the January Producer Price Index? It, too, was hotter than expected.

The Producer Price Index for final demand (PPI) increased 0.3% month-over-month (Briefing.com consensus 0.1%) following a 0.1% decline in December. The Producer Price Index for final demand, less foods and energy (core PPI), jumped 0.5% month-over-month (Briefing.com consensus 0.1%) following a 0.1% decline in December.

On a year-over-year basis, PPI is up 0.9%, versus 0.9% in December, and core PPI is up 2.0%, versus 1.7% in December.

The key takeaway from the report is a lot like the key takeaway from the hotter-than-expected January CPI report: whether the market chooses to dismiss this report as a function of seasonal adjustment factors, the fact of the matter is that the Fed isn’t going to dismiss it, and will see it as a reason to remain patient with respect to cutting rates.

This report certainly played into Atlanta Fed President Bostic’s position, communicated in a speech last night, that he is “not yet comfortable that inflation is inexorably declining to our 2 percent objective.” Mr. Bostic votes on the 2024 FOMC.

The Treasury market looked uncomfortable immediately after its release. The 2-yr note yield shot up to 4.72% and the 10-yr note yield jumped to 4.34%. They are now at 4.67% and 4.31%, respectively, but struggling a bit to fuggedabout the January inflation surprises.

The Treasury market’s cognition over such factors will undoubtedly have some bearing on the stock market’s processing of matters. Perhaps not acutely right away, but if market rates keep pressing higher, valuation concerns will start pressing on sentiment even more.

Stocks, therefore, are going to want to see the Treasury market do a better job of fuggedingaboutit.

Some stocks are. In fact, some stocks, like Applied Materials (AMAT), The Trade Desk (TTD), and Coinbase (COIN) are sitting on healthy pre-market gains following their earnings results, and other stocks, like NVIDIA (NVDA), keep sitting on short sellers and would-be buyers at lower prices. NVDA is up another 1.8% after Loop Capital started coverage with a Buy rating and Street-high $1,200 price target.

Currently, the S&P 500 futures are down four points and are trading fractionally below fair value, the Nasdaq 100 futures are up 30 points and are trading 0.2% above fair value, and the Dow Jones Industrial Average futures are down 92 points and are trading 0.3% below fair value.

In other developments, the January Housing Starts and Building Permits Report was released at the same time as the PPI Report.

Total housing starts declined 14.8% month-over-month to a seasonally adjusted  annual rate of 1.331 million units (Briefing.com consensus 1.470 million) following an upwardly revised 1.562 million (from 1.460 million) in December. Building permits decreased 1.5% month-over-month to a seasonally adjusted annual rate of 1.470 million (Briefing.com consensus 1.510 million) following a downwardly revised 1.493 million (from 1.495 million) in December.

The key takeaway from the report is that the weakness was concentrated in multi-family starts and permits, although single-family starts were down 4.7% in a disappointing development for an inventory-constrained housing market.

—

Originally Posted February 16, 2024 – Fuggedaboutit