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"For every action, there is an equal and opposite reaction," or so says the statement describing Newton's Third Law of Motion. We're not entirely sure if that law translates specifically to yesterday's market behavior, but it is fair to say that the reaction to the January Producer Price Index (PPI) was certainly opposite the price action seen after the January Consumer Price Index (CPI).
The thing is, it wasn't an even reaction. It was better.
Both the stock market and the Treasury market operated in rally mode following the PPI data. Then, they got an added boost with the president's announcement of a reciprocal tariff plan that wasn't as bad as feared. That plan calls for reciprocal tariffs to go into effect on April 1 at the earliest, and then on a case-by-case basis as opposed to a universal tariff.
The feel-good nature of the reaction to these news items carried the market cap-weighted S&P 500 to the doorstep of a new record closing high. Whether it crosses the threshold today remains to be seen.
Market participants will be grappling with some "unequal" dynamics in this morning's data that involve lower growth and higher inflation.
Retail sales declined 0.9% month-over-month in January (Briefing.com consensus 0.0%) following an upwardly revised 0.7% increase (from 0.4%) in December. Excluding autos, retail sales declined 0.4% month-over-month (Briefing.com consensus 0.3%) following an upwardly revised 0.7% increase (from 0.4%) in December.
The key takeaway from the report is that there was a notable pullback in spending on goods, something that can be attributed in part to abnormal weather. The full picture, however, points to a tired consumer after the holidays, raising the question as to whether that fatigue will persist because of inflation pressures or prove to be short-lived.
Inflation pressures were evident in the CPI and PPI reports this week, and they were also evident in the Import and Export Price Indexes today.
Import prices rose 0.3% month-over-month in January and were up 1.9% year-over-year, versus down 1.3% for the 12 months ending January 2024. Excluding fuel, import prices were up 0.1% and were up 1.8% year-over-year, versus down 0.3% for the 12 months ending January 2024.
Export prices increased 1.3% month-over-month in January and were up 2.7% year-over-year, versus down 2.4% for the 12 months ending January 2024. Excluding agricultural products, export prices jumped 1.5% month-over-month and were up 2.9% year-over-year, versus down 1.5% for the 12 months ending January 2024.
The key takeaway from the report is the recognition that there was inflation, as opposed to disinflation, across the report.
The latter point notwithstanding, Treasuries have latched on to the lower growth dynamic in the retail sales data. The 2-yr note yield is down five basis points to 4.26% and the 10-yr note yield is down six basis points to 4.47%.
The lower rates, and healthy responses to earnings results from Airbnb (ABNB), Roku (ROKU), DraftKings (DKNG), and Wynn Resorts (WYNN) to name a few, have not energized the equity futures market.
Currently, the S&P 500 futures are down two points and are trading slightly below fair value, the Nasdaq 100 futures are down eight points and are trading slightly below fair value, and the Dow Jones Industrial Average futures are down 66 points and are trading 0.1% below fair value.
That will translate into a flattish start, which is opposite of what we saw following the CPI and PPI report. All else equal, that isn't too bad.
