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Early Reports Show a Slow Down in Inflationary Measures

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This week we have several important economic reports coming out.  These reports will give us key data on future indicators regarding inflation, housing, retail sales, housing, and consumer sentiment. 

The biggest report came out before the opening bell this morning; the Consumer Price Index, also called the CPI.  This report is a great indicator of inflationary measurers and has a ripple effect impacting both the Housing market index, and housing starts data, both of which are due out later this week.

The CPI showed that year over year core inflation held steady at 1.8%.  This indicates that inflation will probably be more gradual than previously expected.

As you can see in the chart, both CPI, and core CPI have begun to pull back from its recent spike.  Which is key to the future growth of the markets as inflation has been the biggest worry among investors. 

This data combined with the recent jobs report that showed that wages were not increasing as fast as previously expected helped the markets start the day in the green.  Further, this news caused the 10 year treasury yields to pull back this morning.  All positive signs for the markets. 

As of late, the inflationary issues have been putting pressure on the building sector as fears of the Fed rates rising faster than anticipated have subdued several members of the segment. 

You can see this downward pressure in the year to date Price return graph.  While the S&P 500 has gained 4.2%, the building sector has fallen by 12.3% with the big players like KB Homes (KBH - Free Report) and D.R. Horton (DRI) performing well below that of the S&P 500. 

But the positive CPI report bodes well for the upcoming Housing Market Index, and Housing Starts reports that come out later this week.  If these data points stay at or near their current high levels, expect the building sector to bounce back. 

We will also see two other reports that are closely tied together, the Retail Sales report, and Consumer Sentiment.

The Retail report is expected to show a big bounce back from a reading of -0.3% to +0.4% after weak results in both December and January.  Sales fell after a strong three month stretch between September and November due to big holiday sales. 

The largest factor for the upbeat retail sales expectations is overall consumer sentiment which has remained at elevated levels for the past several months.

The data has maintained a reading of 95 or higher for the past 7 consecutive months, and is expected to come in at 98.8 when the report is released on Friday.  If consumer sentiment data comes in as expected it will be a positive indicator for the retail sector, as this report gauges consumer spending, and the overall attitude of the economy. 

If both the Retail sales and Consumer sentiment numbers come in as expected, several key retail companies will be positively impacted. 

These 6 companies currently carry a Zacks Rank #1 Strong Buy rating, and are very well positioned to take advantage of these data points.     

Overall, this morning’s CPI report has eased many fears of increasing inflation, and has begun to set a positive tone for the markets. The coming reports due out later in the week can further boost this positive tone if they come in as expected.

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