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PPI Shows Higher Wholesale Inflation; Meme Stocks Rule (Again)
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Tuesday, May 14th, 2024
Pre-market futures have sunk into the red upon an important report coming out. The Producer Price Index (PPI) for April grew higher than expected nearly across the board: headline month over month reached +0.5%, hotter than the +0.3% expected, and way ahead of the downwardly revised -0.1% from the previous month. Year over year, +2.2% hasn’t been this hot in a full year, and represents a 40-basis-point (bps) hike from the downwardly revised +1.8% in March.
Core month-over-month (stripping out volatile food and gas costs) also came in at +0.5%, much higher than the +0.2% expected. Core year over year did come down month over month, by 40 bps to +2.4%. Ex-food, energy and trade month over month again doubled expectations to +0.4%. Ex-food, energy and trade on a year-over-year basis reached +3.1% — again the highest in a year and 30 bps hotter than anticipated. Wholesale prices are more expensive than predicted; that’s not a great sign for inflation — or future interest rates — and certainly presents a big challenge for tomorrow’s Consumer Price Index (CPI).
Part of what has buoyed the stock market higher over the past month and year to date is the idea that interest rates will eventually come down. Fed Chair Powell has continued to indicate a willingness of bringing down rates on the Fed funds level in order to best achieve a “soft landing” in the economy. But this presumes that inflation metrics like PPI keep coming down; year-over-year PPI levels had been coming in sub-1% in the past year, but now we can’t get wholesale prices back below +2%.
Pre-market futures had been in the green prior to the report. All major indices dropped into the red on the news, though the Dow looks to be clawing back to gains after a 120-point drop from +72 to -55 points in a manner of minutes. Currently the Dow is back up to +45 points. The S&P 500 and Nasdaq have remained slightly lower. Meanwhile, the 10-year and 2-year bond yields have gone up on the news, now over +4.5% on the 10-year and nearly +4.9% on the 2-year.
Tomorrow’s CPI report is the most important of the week. While it stands to reason that wholesale input prices (PPI) going higher means that retail prices (CPI) will also come in higher than estimates, price reductions at the point of sale — even higher inventories due to purchases not being made for higher-priced items — can have a lot to say about what the consumer paid last month. Expectations are for CPI to tick up month over month, to +0.4%, and down year over year, to +3.4%. Both core prints are currently expected to slim: to +0.3% month over month and +3.6% (20 bps lower from March) year over year.
Elsewhere, meme stocks are making a comeback. Fundamentals clearly are taking a back seat again for companies like Gamestop (GME - Free Report) and AMC (AMC - Free Report) , which are up an astonishing +120% and +107% this morning, respectively. But SunPower (SPWR - Free Report) , which doesn’t report earnings til late next week, takes the cake this morning: +155% share price increase ahead of today’s open, which fell to near-term lows on three major negative quarterly earnings reports in a row. Open season on short-holders, apparently.
Image: Shutterstock
PPI Shows Higher Wholesale Inflation; Meme Stocks Rule (Again)
Tuesday, May 14th, 2024
Pre-market futures have sunk into the red upon an important report coming out. The Producer Price Index (PPI) for April grew higher than expected nearly across the board: headline month over month reached +0.5%, hotter than the +0.3% expected, and way ahead of the downwardly revised -0.1% from the previous month. Year over year, +2.2% hasn’t been this hot in a full year, and represents a 40-basis-point (bps) hike from the downwardly revised +1.8% in March.
Core month-over-month (stripping out volatile food and gas costs) also came in at +0.5%, much higher than the +0.2% expected. Core year over year did come down month over month, by 40 bps to +2.4%. Ex-food, energy and trade month over month again doubled expectations to +0.4%. Ex-food, energy and trade on a year-over-year basis reached +3.1% — again the highest in a year and 30 bps hotter than anticipated. Wholesale prices are more expensive than predicted; that’s not a great sign for inflation — or future interest rates — and certainly presents a big challenge for tomorrow’s Consumer Price Index (CPI).
Part of what has buoyed the stock market higher over the past month and year to date is the idea that interest rates will eventually come down. Fed Chair Powell has continued to indicate a willingness of bringing down rates on the Fed funds level in order to best achieve a “soft landing” in the economy. But this presumes that inflation metrics like PPI keep coming down; year-over-year PPI levels had been coming in sub-1% in the past year, but now we can’t get wholesale prices back below +2%.
Pre-market futures had been in the green prior to the report. All major indices dropped into the red on the news, though the Dow looks to be clawing back to gains after a 120-point drop from +72 to -55 points in a manner of minutes. Currently the Dow is back up to +45 points. The S&P 500 and Nasdaq have remained slightly lower. Meanwhile, the 10-year and 2-year bond yields have gone up on the news, now over +4.5% on the 10-year and nearly +4.9% on the 2-year.
Tomorrow’s CPI report is the most important of the week. While it stands to reason that wholesale input prices (PPI) going higher means that retail prices (CPI) will also come in higher than estimates, price reductions at the point of sale — even higher inventories due to purchases not being made for higher-priced items — can have a lot to say about what the consumer paid last month. Expectations are for CPI to tick up month over month, to +0.4%, and down year over year, to +3.4%. Both core prints are currently expected to slim: to +0.3% month over month and +3.6% (20 bps lower from March) year over year.
Elsewhere, meme stocks are making a comeback. Fundamentals clearly are taking a back seat again for companies like Gamestop (GME - Free Report) and AMC (AMC - Free Report) , which are up an astonishing +120% and +107% this morning, respectively. But SunPower (SPWR - Free Report) , which doesn’t report earnings til late next week, takes the cake this morning: +155% share price increase ahead of today’s open, which fell to near-term lows on three major negative quarterly earnings reports in a row. Open season on short-holders, apparently.
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