*I made an appearance on the TD Ameritrade network on Friday that you can see HERE.
We got the inflation data (more below) this week and the rate of price increases are declining but not as fast as the market expected. There are also several Fed governors making appearances throwing the occasional 50bps hand grenade at the market so the uncertainty permeates trading as you can see in the chart below.
This short-term chart shows the market has been a range since the February Fed meeting. The intra-day moves have been very sharp and unpredictable. The pullback towards the end of the week came down to the lower end of the February range but buyers came in late Friday to keep the market from rolling over. At the top of the chart is the 4178 level which is where the market topped in September and December of last year and a break-out through this level could spark a run up to 4300.
The Longer-Term Timeframe
If we zoom out on the S&P 500 ETF (SPY), we can see a top in January of 2022 and then a big mess. This messy price structure is what corrections look like as buyers and sellers try to find a bottom after a trend break. Did it end in October? Very possible when analyzing the chart patterns and I think we will get a confirmation in the coming weeks. If not, that means a new low on this chart and I will be looking for a break of the $380 level to indicate the S&P is heading in that direction.
Bond Market
Bonds have been on the move this month. As you can see, the yield curve has shifted up and to the right with 6Mo T-Bills now yielding 5%. The longer tenors have been holding in a range which is good for mortgages and corporations raising capital through the public debt markets.
Over the next several months I think you will see the most rate volatility in the belly of the curve as investors wrestle with how stubborn inflation will remain. In the front end of the curve, the recent move is pronounced and shows a shift in thinking that the Fed will be raising rates in smaller increments and for a bit longer than expected compared to last month.
In either case, it looks like the Fed will be going in 25bps increments to give the economy a chance to recover while supply chains begin a return to normalcy.
Economic Data
- January’s Consumer Price Index (CPI) rose 0.5% from December and up 6.4% compared to last year. Compared to last year, energy and food prices are 8.7% and 10.1% higher, respectively. On the services side, rents continue to rise but should cool in the coming months as this metric is lagged.
- Core retail sales for January was reported better than expected with a 1.7% increase over December with a sharp rebound in department store sales and restaurants/bars.
- The January Producer Price Index (PPI) came in higher than expected with a monthly increase of 0.7% and up 6% on an annual basis. Goods prices rose 5% (MOM) due to higher gasoline prices while food prices fell 1%.
- The U.S. national debt has increased by more than $8 trillion dollars since late January 2020, pushing the total debt over $31 trillion.
- The consumer roared back last month with a 3% increase in retail spending that was the largest monthly gain in nearly two years, adding to evidence that U.S. economic growth picked up at the start of the year. Wage gains, state tax cuts and cost-of-living adjustments are boosting disposable income and lifting the U.S. economy. But a great deal hangs on the path of inflation.
Thank You for being a subscriber!
President, Kisco Capital
