Stocks Post Strong Rebound After Hotter-Than Expected PPI Inflation Report
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Stocks closed higher yesterday, despite a hotter-than-expected inflation report.
The market opened lower yesterday. But it felt overdone given the previous day's decline. Clearly the market felt the same as index by index turned positive as the day wore on. By day's end, the Dow was up by 1.08%, the S&P was up by 0.33%, and the Nasdaq, which was down as much as -1.44%, closed up by 0.08%. Not much, but a full retracement, and then some, of the intraday losses. The small-cap Russell 2000 was up 1.38%. And the mid-cap S&P 400 was up 1.03%.
Yesterday's Producer Price Index (PPI) wholesale inflation report came in hotter-than-expected. The headline rate rose 1.3% m/m vs. last month's 0.5% and views for 0.5%. The y/y rate jumped to 6.3% vs. last month's upwardly revised 5.6% (from 5.4%) and estimates for 5.4%. The core rate (ex-food & energy) was up 0.7% m/m vs. last month's 0.2% and forecast for 0.3%, while the y/y rate came in at 5.0% vs. last month's 4.6% and consensus for 4.5%.
Between Wednesday's CPI and yesterday's PPI, it does show inflation going back up. That is in contrast to the latest Personal Consumption Expenditures (PCI) index, which showed inflation easing, and in contrast to previous CPI and PPI reports, which have come in better-than-expected. But this is the latest read.
Nonetheless, the market took it in stride. Long-term yields fell yesterday with the 10-year Treasury now at just 5.09% after hitting a high last week of 5.35%.
Oil was also down.
Odds are still at 71.8% for no rate hike when the Fed makes their next Announcement on 10/28. Plus, with the mid-terms just a few weeks away, it's highly unlikely the Fed will do anything but pause until afterwards, which punts the decision on rates to the 12/9 meeting. And we'll get three more inflation reports, and two more employment reports before then.
In the meantime, Q3 earnings season is here, and the market should point its focus back to earnings where they belong.
Only 23 companies on deck to report today, including HDFC Bank, Regions Financial, and Republic Bancorp, to name a few.
This week's earnings were dominated by big banks. And by and large, they showed strong growth, even if the price action following it was less impressive. But I'll chalk that up to bad timing given the market's pullback.
Next week heats up with 422 stocks set to report, including two Magnificent 7 companies (Meta and Tesla), and other high-profile names like Netflix, Texas Instruments, IBM, Abbott Labs, and Western Digital.
With one more day to go this week, only the Dow is on pace to close higher for the week. That would make it two up-weeks in a row if they do.
The others have some work to do. But the nice bounce off their intraweek lows would be a sign of strength and resilience after the S&P's up-week last week, and the Nasdaq's previous 4 up-weeks in a row.
Best,

, Zacks Investment Research
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