Stocks closed lower on Friday, with the big three indexes also finishing down for the week. But well off the lows we saw from earlier in the week last week following the higher than expected CPI report.

But the small-cap Russell 2000, and the mid-cap S&P 400 both closed higher for the week with gains of 1.13% and 0.71% respectively, showing that the bull market is more than just big tech.

Friday's higher than expected Producer Price Index (PPI) did not elicit the same kind of reaction that last Tuesday's CPI report did. The headline number came in at 0.3% m/m vs. last month's -0.1% and views for 0.1%. The y/y rate moderated to 0.9% vs. last month's 1.0%, but was above the consensus for 0.7%. The core rate (ex-food & energy) rose 0.5% m/m vs. last month's -0.1% and estimates for 0.1%. The y/y rate came in at 2.0%, which was above last month?s 1.8%, and expectations for 1.7%.

The higher readings suggest the Fed could stay higher for longer, a little longer than expected. The Fed has already all but quashed the idea of a March cut. That naturally pushed expectations to May. But every data point that shows slowing disinflation, or worse, a creep back up in inflation, potentially pushes rate cuts further down the road.

But it does not take it off the table. And Fed watchers should note that one month of data, is just that, one month of data.

For context, core CPI (retail inflation) is currently at 3.9% y/y. That's down from 2022's summer high of 6.6%.

Core PPI (wholesale inflation) is now at 2.0% y/y, also down from 2022's summer peak of 8.2%.

The last reading of the Personal Consumption Expenditures (PCE) index (the Fed's preferred inflation gauge), showed inflation at 3.2% y/y, down from 2002's peak of 5.3% as well. The next report comes out on February 29.

All in all, this shows the prevailing trend is lower inflation. While it's true, the recent CPI and PPI reports showed inflation falling less than expected (and even ticking up a bit), it's not likely to alter the Fed's thinking on rate cuts just yet.

Those sentiments were echoed last week by Austan Goolsbee, the President and CEO of the Federal Reserve Bank of Chicago, when he said, "let's not get amped up on one month of CPI that was higher than it was expected to be." He continued by saying, "if you see inflation up a little bit, that doesn't mean that we're not on the target to get to 2%. We can still be on the path even if we have some increase and some ups and downs --- so let's not get too flipped out."

The Fed's latest forecast is still for core PCE to fall to 2.4% in 2024, and 2.1% in 2025.

And with that, they forecast they will cut rates 3 times this year (presumably by 25 basis points each).

Nonetheless, the recent inflation reports put the issue of when the cuts will finally begin up for debate.

But for now, as long as the cuts are coming, that's supportive for stocks.

We've got a full week of economic reports this week, not the least of which is Wednesday's FOMC Minutes from January's meeting.

We'll also get more earnings with 917 companies on deck to report, including marquee names like Walmart and Home Depot today (Tuesday), and Nvidia, Analog Devices, and Synopsys tomorrow.

Should be another busy week.

See you tomorrow,