Inflation was front and center this week with the release of the December Consumer Price Index (CPI) report. Inflation of 7% Headline and 5.5% Core (ex Food and Energy) were in line with consensus expectations.
Under the Hood (of Capital Markets)
Not Your Father's Stagflation
Inflation continues to be in the news and is top of mind for clients. This week, the September Consumer Price Index was reported 5.4% over the previous year, an inflation number well above where it was reported prior to the COVID-19 crisis.
Seasons of Change
For many, 2020 has been a year to forget. Headlined by the COVID-19 pandemic and the ensuing global response, stimulus from central banks and governments has helped limit the damage, as the U.S. economy has now experienced its shortest and steepest recession ever.
Healthy Consumer, Healthy Economy
This week, the Federal Reserve made big news when it reduced the federal funds rate by 0.25 percent, its second cut this year. While any Fed action always dominates the headlines, the interest rate reduction was expected and fully priced into the market. Having raised federal funds a quarter point just last December, it has been a rather dramatic change of monetary policy in which the Fed has now cut rates twice this year.
Short Pullback in a Long Bull Market
In recent weeks, the 10-year U.S. Treasury rose to three-and-a-quarter percent—a level not seen since 2011. In addition, the stock market sold off five percent from all-time highs, volatility has risen and the Chinese and European markets dipped. All this amid a backdrop of good corporate earnings and moderate-to-good economic news.
Reshuffling the Deck
On Monday, the most widely followed U.S. equity index, the S&P 500, will re-arrange its sector classification system.
Inflation is in the Eye of the Beholder
This week, the U.S. Bureau of Labor and Statistics (BLS) released their monthly measurement of inflation: Consumer Price Index (CPI), annualized 2.7 percent, was down 0.2 percent from the month prior.
What Matters for Stocks
If you break the stock market down into its most basic elements only two things matter: earnings of companies and what investors are willing to pay for a dollar of earnings. This week, earnings season for the second quarter of 2018 was in full swing and investors are digesting the news.
Path to Productivity
Since the Tax Cuts and Jobs Act was signed into law on December 22, 2017, pundits and economists have continued to debate if companies would increase their capital expenditures due to the 100-percent-expensing provision in the new tax code.
Quitaly
News of political uncertainty in Italy, trade disputes and a strong employment number for May injected volatility into the U.S. stock market, with the S&P 500 ending up .43 percent for the week and U.S. Treasury bond prices moving higher, with the yield on the 10-year bond ending the week at 2.89 percent.
More Bang for Your Buck
In our annual economic Investment Outlook, we predicted that interest rates would rise but not enough to derail the expansion. At the same time, we anticipated that the conflicting signals of robust earnings growth and above-average valuation would settle somewhere in the middle.
Back to Basics
With this week’s latest rebound, the S&P 500 has now closed up or down more than 1 percent 27 times year-to-date ‒ this is more than three times the daily volatility that investors experienced in 2017. Accompanying higher stock prices, safe-haven bonds retreated modestly.
There's No Place Like Home
The S&P 500 put up strong gains into the holiday and finished up 2 percent for the week. This quarter has been marked by the return of volatility with the market posting daily gains or losses in excess of 1 percent on 22 different occasions. To put this in perspective, there were just eight of these instances in all of 2017.
50 Shades of Beige
U.S. factory production exceeded growth expectations and the University of Michigan consumer confidence survey came in at a 14-year high, helping U.S. stocks to break out of their four-day slump (triggered by tariffs and White House turmoil). However, it won’t be enough to turn in positive numbers for the week.
U.S. Core Inflation Drifts Slightly Higher
U.S. stocks continued their upward climb this week, with the Dow Jones Industrial Index trading above 25,775 and the S&P 500 rising approximately 1.5 percent for the week. The U.S. dollar traded off relative to the euro, which surged to a three-year high of $1.21.
Taxman
After eight consecutive weeks of positive returns, the S&P 500 declined by 0.25 percent as investors digest another solid earnings season and evaluate the implications and likelihood of the “Jobs Act” becoming law. To add to the confusion, there are substantial differences between the House and Senate version of the bill released on Thursday.