Wednesday, February 14, 2018

Markets climb after inflation report

Dow rose 64, advancers over decliners about 2-1 & NAZ gained 66.  The MLP index was even in the 276s.  Junk bond funds did little & Treasuries were sold again.  Oil was steady in the 59s & gold vaulted 18 to 1349.

AMJ (Alerian MLP Index tracking fund)

CL=FCrude Oil58.36

GC=FGold  1,336.90

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US consumer prices rose by more than projected in Jan as apparel costs jumped the most in nearly 3 decades.  The report sent Treasuries & stocks tumbling, as it added to concerns about an inflation pickup that have roiled financial markets this month.  The consumer price index rose 0.5% from the previous month, above the estimate for a 0.3% increase, a Labor Dept report showed.  Excluding volatile food & energy costs, the core gauge increased 0.3%, also above forecasts for 0.2%.  It was up 1.8% from a year earlier, higher than the 1.7% estimate.  The yield on 10-year Treasuries rose to 2.86%, while US stock futures fell, as the figures renewed investor concerns that the Federal Reserve will raise interest rates at a faster pace than anticipated.  The data followed wage figures earlier this month sent Treasury yields spiking & started a rout in equities that pushed them into the first correction in 2 years.  The 1.7% monthly gain in apparel prices, which account for about 3%  of the CPI, was the biggest since 1990.  Women’s apparel costs jumped a record 3.4%, the report showed.

U.S. Consumer Prices Top Forecasts, Sending Markets Tumbling

US stocks pared declines, as financial shares pushed higher with 10-year Treasury yields after data showed an unexpected acceleration in price gains.  The S&P 500 was slightly higher after erasing a drop of 0.5%.  Futures on the measure had tumbled more than 1% after the inflation report & the 10-year rate spiked toward a 4-year high on concern the Federal Reserve would quicken its pace of tightening.  Stocks climbed back from lows as investors weighed a separate report showing a slowdown in retail spending that raised questions about the strength of the American consumer.  While the price data added to signs of an inflation pickup that have roiled financial markets this month, investors must now weigh whether the acceleration will force the Fed to raise rates faster than the market currently anticipates or if the retail sales signal a potential crack in economic fundamentals.  New Fed Chairman Jerome Powell suggested yesterday that officials would forge ahead with gradual tightening even as it keeps an eye on financial-system risks following the recent equity rout.  Stocks tumbled into a correction last week & yields pushed higher on the heels of a jobs report that signaled a tightening labor market.  Stocks & bonds have been in a tug-of-war for over a week, with sinking equities sparking demand for the haven of Treasuries, mitigating the selloff in fixed income.  In Europe, stocks advanced as investors traded on earnings from companies.  The ¥'s rise to a 15-month high weighed on Japan’s Topix index, while shares in Seoul, Hong Kong & Shanghai gained before a weeklong Lunar New Year holiday.  WTI crude oil drifted below $59 a barrel after its worst week in 2 years as fears over rising US supplies curb investor optimism.

U.S. Stocks Fluctuate While Traders Weigh Fed Outlook

US retail sales unexpectedly declined in Jan & Dec receipts were revised lower, indicating consumer demand in Q1 may cool, according to Commerce Dept figures.  Overall sales fell 0.3% (est 0.2% gain), the most since Feb 2017, after little change in prior month (prev 0.4% increase).  Purchases at automobile dealers dropped 1.3%, the most since Aug.  Retail-control group sales, which are used to calculate GDP & exclude food services, auto dealers, building materials stores & gasoline stations, unchanged following a revised 0.2% decrease in Dec (prev 0.3% gain).  7 of 13 major retail categories showed declines in receipts.  The decrease in Jan sales & the downward revision to Dec were spread throughout the major retail categories.  The soft report suggests consumer spending, the biggest part of the economy, started the current qtr with less momentum following a 3.8% annualized increase in Q4.  While job growth, modest income gains & recent tax cuts should help buoy demand, a pickup in credit-card debt may have persuaded households to temper their spending at merchants last month.  The figures aren't adjusted for changes in prices & can be volatile from month to month.

The gut reaction to the inflation data was negative.  Then investors threw caution to the wind & became active buyers.  The prospect of higher interest rates has become less scary for investors, especially with economic data & optimism continuing to be strong.  Gold (negative bets on stocks) has also rallied this week.  Time will tell if the recovery for stocks this week has legs.

Dow Jones Industrials

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