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Markets Swing into Red on CPI, Retail Sales Reports

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Wednesday, February 14, 2018

What started off as another pleasing up market following a mild positive close on Tuesday turned into a blood-red market index in futures ahead of the bell this Valentine’s Day (Happy Valentine’s Day, by the way). What happened? New January Consumer Price Index (CPI) and Retail Sales numbers hit the tape. The Dow tumbled from up nearly 150 points to down 300 points almost immediately.

CPI month over month rose hotter than expected, up 0.5% from the analyst consensus +0.3%, on an upwardly revised headline from the previous month. Stripping out volatile food & energy prices, that number was still higher than anticipated, +0.3%. Year over year CPI hit +2.1%, whereas +1.9% was expected.

Retail sales, on the other hand, fell lower than we were looking for: -0.3% month over month, where +0.2% had been expected. Ex-auto sales was unchanged month over month from the +0.4% expected. Gasoline prices spiked — now up 8.5% year over year — but otherwise retail pricing looks to have retrenched somewhat.

Of course, this is a tough time to look at this sort of data, with myriad seasonal adjustments to consider following holiday shopping season at the end of 2017. Even still, the market is now pricing in some fears about the Federal Reserve raising interests higher, perhaps quicker, adding another dollop of reality that our era of “cheap money” is now in the rearview mirror.

We also saw Treasury yields on both the 2-year and 10-year spike up on this morning’s news. The 10-year bond is now back up in the mid-2.8’s, after spending most of the past couple years roughly 50 basis points cooler. Again, concerns about inflation in a potentially hotter economic setting is flipping switches all across algorithmic trading apparatuses (apparati?).

In any case, while usually vibrant reds and hotter temperatures are positives associated with Valentine’s Day, these days they tend to stoke the fires of volatility. Yet Zacks Exec VP Kevin Matras maintains a calmer, more positive outlook on the market in general (check out his latest Profit from the Pros here) — all the better to buy good stocks at attractive prices. After all, isn’t attractiveness what this holiday is really all about?

Mark Vickery
Senior Editor

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