So far, so good for the stock market this week, which has posted back-to-back winning sessions that have the S&P 500 up 1.7% for the week after suffering its largest decline in two years last week.
The bounce, and the ability to fend off selling pressure both days, put a buy-the-dip, fear-of-missing-out buzz in the air, but to be sure, last week's carnage also fostered some lingering concern about getting stung by that trade.
Everyone wants an all-clear signal, yet what they want may not translate so easily into what they'll get now that inflation bugs are emerging like a periodical cicada to see the light of day.
Those concerns have been reflected in rising inflation expectations and rising interest rates. They are coming to the fore again this morning, too, following the release of the January Consumer Price Index ("CPI").
It was evident in the futures market ahead of the report that participants were hopeful the CPI data would provide some inflation relief. The S&P futures were up 11 points, the Nasdaq 100 futures were up 30 points, and the Dow Jones Industrial Average futures were up 129 points.
The CPI report didn't satisfy those hopeful expectations.
Total CPI increased 0.5% in January (Briefing.com consensus +0.4%) while core CPI, which excludes food and energy, jumped 0.3% (Briefing.com consensus +0.2%), which was its largest month-over-month change since January 2017.
Taking those monthly changes into account, total CPI was up 2.1% for the 12-month period ending in January, versus 2.2% for the 12-month period ending in December. On the same basis, core CPI was up 1.8% and has now been up 1.7% or 1.8% for nine consecutive months.
Consumer inflation isn't taking off per se based on this data, yet the key takeaway from the CPI report is that this data will continue to stoke rate-hike fears that will contribute to increased volatility in the capital markets.
To that end, the S&P futures are currently down 24 points while the Nasdaq 100 futures and Dow Jones Industrial Average futures are down 62 points and 213 points, respectively. The yield on the 2-yr note, which stood at 2.11% moments before the release, has popped to 2.14% while the yield on the 10-yr note, which held at 2.82% ahead of the release, has jumped to 2.86%.
The CPI report is the focal point for the market at this juncture considering that the January Retail Sales report was a disappointment, replete with sizable downward revisions for December. In other words, it was a relatively weak report which, on its own, might have been a basis for the Treasury market to rally on the notion that soft retail sales would keep the Fed from raising rates.
Retail sales decreased 0.3% in January (Briefing.com consensus +0.2%) following a downwardly revised 0.0% reading (from +0.4%) for December. Retail sales, excluding autos, were flat (Briefing.com consensus +0.4%) on the heels of a downwardly revised 0.1% increase (from +0.4%) for December.
Core retail sales, which exclude auto, gasoline station, building material, and food services sales, and which factor into the computation for GDP, were flat.
The key takeaway from the report is that consumer spending on goods wasn't as strong as previously thought in December and wasn't strong in January, which will raise some doubts about GDP growth expectations.
The stock market is on course for a negative start, yet there will be great interest in whether it kisses and makes up with the data after the open. It is Valentine's Day after all, but for the time being, market bulls aren't feeling the love after getting stung by the CPI headline buzz.
(Correction: The original comment mistakenly included a reference to the shelter index contribution to total CPI for December. That comment has been removed from the edited version)