Cautionary inflation and consumer readings spread concerns…
- Following the long weekend, investors returned today staring down earnings from the nation’s biggest retailers and an update on the Federal Reserve’s rate path perspective. Additionally, market star Nvidia (NVDA) shares its latest results on Wednesday afternoon. Last week, however, did close on a down note – ending a five-week winning streak on Wall Street.
- Driving the decline were U.S. consumer and wholesale inflation readings which helped put the rally genie back in the bottle. Wholesale prices in the United States picked up in January, the latest sign that some inflation pressures in the economy remain elevated. The Labor Department reported Friday that its producer price index — which tracks inflation before it reaches consumers — rose 0.3% from December to January after having fallen -0.1% from November to December.
- Additionally, the January retail sales report showed sales dropped. The whole sale price reading provided the latest sign that some inflation pressures in the economy remain elevated. In other words, neither inflation nor consumer spending readings showed improvement. To date though, markets seem largely impervious to suggestions that the Federal Reserve isn’t going to start cutting interest rates any time soon. The good news for stocks has been surprisingly strong economic growth and low unemployment. At some point, though, the sharp Fed rate hikes since 2022 will start to bite into corporate performance. Compounding the issue, consumers have run down savings from the Covid-19 pandemic and mortgage rates are once again climbing to two-decade highs.
- Additional messaging from the central bank will happen on Wednesday when minutes from the last Fed rate setting meeting are released along with at least five central bankers giving speeches later in the week. Current messaging suggests that the Fed is in no rush to start cutting rates. Expectations for the first move lower have now slid back to June. It should be kept in mind that as recently as a few weeks ago, rate cuts were anticipated as early as this March, at least according to the CME FedWatch tool. The markets are finally starting to pay attention, even if not embracing, the central bank’s continued signaling of “higher for longer” – even if the broader ramifications of this policy remain in doubt.