Is Inflation Rearing its Head?
Broad positive market movement continues, signs of concerns, though, trickling in.By: Shlomo Cooper, Senior Analyst at Tradenet
The main Wall Street indexes rallied to greater historic highs yesterday, led by banking stocks after Fed Chairwoman, Janet Yellen, remarking that it would be unwise to wait too long to hike rates. Apple (AAPL) set a new historic high for the second day in a row, contributing to the gains on the 3 main indexes, the Dow Jones, S&P 500 and NASDAQ. Almost 90 days have now gone by since the S&P 500 fell 1% on a day. Market volatility has plummeted to its lowest level in 10 years.
Yellen related that pushing off a rate hike is likely to compel the central bank at a later point to tighten monetary policy faster, which could pose a recessionary threat. Likewise, Yellen voiced uncertainty about economic policy under a Trump administration. In her testimony before the Senate Banking Committee yesterday, Yellen did not note whether the Fed is still planning on hiking rates 3 times this year, nor did she signal whether the next rate hike will be in March or in June. Most analysts expect the next hike to be in June.
The banks expected to benefit from higher rates were those leading the market higher. Goldman Sachs (GS) rose 1.29%, Bank of America (BAC) jumping 2.82%. The financial sector (XLF) ended up by 1.16%, the banking sector (KBE) soaring 1.59%. Year-to-date, the banking sector is up 4.5%.
In summary for the day, the Dow Jones climbed 0.45%, the S&P 500 tacking on 0.4%. The NASDAQ rose 0.32%.
On the economic front, the Producer Price Index (PPI) rose 0.6% for January, double expectations. Annualized producer inflation now stands at 1.6%, a level not seen since 2014.
On the S&P 500, 60 stocks rose to new 52-week highs, without a single stock dipping to a new yearly low; on the NASDAQ, 124 stocks recorded new 52-week highs, 22 falling to new yearly lows.
About 6.7 billion shares changed hands on U.S. exchanges, in keeping with the 6.7 billion average over the last 20 trading days.
Wednesday: The producer inflation rate, which was twice the forecasted figure, is likely to weigh on consumer inflation figures expected today – especially in light of the fact that the energy and housing sectors were hot last month. A surprise surge in inflation is likely to heighten pressure on the Fed to hike rates, and possibly, as soon as the Fed’s March Open Market Committee meeting. Likewise, high inflation levels are likely to add another facet to Trump’s infrastructure spending and tax reform plans. After all, higher interest rates will exacerbate budget forecasts.
The two key reports today include retail chain sales and the Consumer Confidence Index, both likely to provide further hints into how close the Fed is to executing its next rate hike. Inflation figures are expected to come out at 8:30 N.Y. time and point to annualized inflation of 2.4%. In December, the annual inflation rate rose past 2% for the first time in 2 years. The Fed’s annual inflation target is 2%. The Consumer Price Index is expected to record January gains of 0.3%.
Another significant report today will be coming out at 8:30, i.e. January retail chain sales, the figure expected to climb 0.1% compared to the 0.6% gains recorded in December. Other figures today will include the Empire State Survey on manufacturing at 8:30, with industrial output coming out at 9:15 and business inventories at 10:00.
The U.S. Department of Energy will release its weekly crude inventory report at 10:30.
Trump is also expected to command attention today in light of his meeting with Israeli PM Binyamin Netanyahu.
The companies releasing their numbers today before opening include PEP and GRPN. After closing, be primed for the numbers of CSCO, AMAT, KHC, MAR, CAR and CBS.
Wednesday’s Hot Stocks: PEP, PG, AIG, FOSL, ESRX, A
Have a great trading day!
|Wednesday||10:00||NAHB Housing Market Index||68||Medium|
|RYAAY||Ryanair Holdings plc||AM||Monday|
|TEVA||Teva Pharmaceutical Industries Limited||AM||Monday|
|VNO||Vornado Realty Trust||PM||Monday|
|NBL||Noble Energy, Inc.||PM||Monday|
|DISCA||Discovery Communications, Inc.||AM||Tuesday|
|DPS||Dr Pepper Snapple Group, Inc.||AM||Tuesday|
|Q||Quintiles IMS Holdings, Inc.||AM||Tuesday|
|TMUS||T-Mobile US, Inc.||AM||Tuesday|
|TAP||Molson Coors Brewing Company||AM||Tuesday|
|DVN||Devon Energy Corporation||PM||Tuesday|
|ESRX||Express Scripts Holding Company||PM||Tuesday|
|A||Agilent Technologies, Inc.||PM||Tuesday|
|AIG||American International Group, Inc.||PM||Tuesday|
|ADI||Analog Devices, Inc.||AM||Wednesday|
|WMB||The Williams Companies, Inc.||PM||Wednesday|
|LBTYK||Liberty Global plc||PM||Wednesday|
|LBTYA||Liberty Global plc||AM||Wednesday|
|AMAT||Applied Materials, Inc.||PM||Wednesday|
|MAR||Marriott International, Inc.||PM||Wednesday|
|MRO||Marathon Oil Corporation||PM||Wednesday|
|CSCO||Cisco Systems, Inc.||PM||Wednesday|
|KHC||The Kraft Heinz Company||PM||Wednesday|
|MGM||MGM Resorts International||AM||Thursday|
|WM||Waste Management, Inc.||AM||Thursday|
|ALXN||Alexion Pharmaceuticals, Inc.||AM||Thursday|
|ED||Consolidated Edison, Inc.||PM||Thursday|
|DLR||Digital Realty Trust, Inc.||PM||Thursday|
|CPB||Campbell Soup Company||AM||Friday|
|SJM||The J. M. Smucker Company||AM||Friday|
|DE||Deere & Company||AM||Friday|
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