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The stock market created some misdirection for investors following yesterday's disappointing Consumer Price Index (CPI) for January. The major indices sold off sharply at the open and then spent most of the day paring those losses as the buy-the-dip crowd did its thing.
The end result was a stock market at the index level that looked like it had a ho-hum day thanks to the relative strength emanating from the mega-cap space. The misdirection was the showing of the major indices, which belied weak market internals that reflected some broader selling interest as market rates moved higher in the wake of the CPI report.
Decliners led advancers by a better than 2-to-1 margin at the NYSE while it was a bit narrower 13-to-9 margin at the Nasdaq. The Russell 2000 was down 0.9% and the equal-weighted S&P 500 was down 0.6%.
The overwhelming feeling is that "it could have been worse," which is why there was a concession to view the performance as being otherwise impressive as the 10-yr note yield shot up 10 basis points to 4.64% and the fed funds futures market pushed out its prevailing expectation for the next rate cut to September/maybe October from July.
And so today we get to do it all over again, only this time the focal point is the January Producer Price Index (PPI), which also brought some surprises of its own.
The Producer Price Index for final demand increased 0.4% month-over-month (Briefing.com consensus 0.2%) following an upwardly revised 0.5% increase (from 0.2%) in December. Excluding food and energy, the index for final demand increased 0.3% month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.4% increase (from 0.0%) in December.
On a year-over-year basis, the index for final demand was up 3.5% (3.51% unrounded) versus 3.5% in December (3.46% unrounded). Excluding food and energy, the index for final demand was up 3.6% (3.61% unrounded) versus 3.7% in December (3.75% unrounded).
The key takeaway from the report is that the month-over-month readings were less upsetting than the month-over-month readings seen in the CPI report. Also, the year-over-year readings look improved at first blush, yet the revisions moved the December year-over-year readings for PPI and core PPI higher (versus the initial readings), so the improvement in January is from a higher base, meaning it is relative and not absolute.
(Sidenote: when the December PPI report was first released, PPI was up 3.3% year-over-year and core PPI was up 3.5%)
Not surprisingly, there has been some knee-jerk action in the Treasury market and in the equity futures market, which, at the moment, look inclined to put a positive spin on the PPI data, which was also accompanied by another encouraging weekly initial jobless claims number (a leading indicator).
Initial jobless claims for the week ending February 8 decreased by 7,000 to 213,000 (Briefing.com consensus 217,000) while continuing jobless claims for the week ending February 1 decreased by 36,000 to 1.850 million.
The key takeaway from the report is the low level of initial jobless claims, which continue to connote an otherwise positive demand outlook on the part of employers who are reluctant to cut staff.
Currently, the S&P 500 futures are up nine points and are trading 0.2% above fair value, the Nasdaq 100 futures are up 66 points and are trading 0.3% above fair value, and the Dow Jones Industrial Average futures are up 92 points and are trading 0.2% above fair value. The 2-yr note yield, at 4.35% before the data, is down two basis points to 4.35%. The 10-yr note yield, at 4.60% before the data, is down seven basis points to 4.57%.
There has been another large batch of earnings results since yesterday's close, highlighted by reports from Cisco (CSCO), Redditt (RDDT), Robinhood Markets (HOOD), AppLovin (APP), and The Trade Desk (TTD) to name a few that have seen outsized responses to their reports.
Like yesterday, however, the economic data -- and the reaction to it -- is taking precedence as the market driver. Unlike yesterday, the dip buyers are going to have to wait at today's open.
