Stocks End Mixed On Friday And For The Week, More Inflation Data On Tap For This Week  Image: Bigstock Stocks closed mixed on Friday, with the Dow and the small-cap Russell 2000 ending higher, while the S&P and Nasdaq finished lower. The indexes closed mixed for the week as well, with the Nasdaq and Russell 2000 ending higher, while the Dow and the S&P finished lower. Last week's inflation reports by both the Consumer Price Index (CPI) (which tracks retail inflation), and the Producer Price Index (PPI) (which tracks wholesale inflation), weighed on stocks. Inflation continued to ease, but it's decline slowed more than expected, raising concerns that the Fed may need to raise rates as high as (or higher than) expected. Fed Funds traders have been betting that the Fed would call it quits at the 4.75%-5.00% range (midpoint of 4.88%), vs. the Fed's estimated 5.1% forecasted terminal rate. With the midpoint currently at 4.63%, that would mean only one more 25 basis point hike to get to 4.88%, and two more 25 bps hikes to get to the 5.1% level. Not a huge difference. But enough to matter. Adding to the mix, Goldman Sachs last week, after the two hot inflation reports, increased their terminal rate forecast to a range of 5.25%-5.50% (midpoint of 5.38%), which would mean three more 25 bps hikes (1 in March, 1 in May, and 1 in June). Either way, the higher rates have to go, and the longer they need to stay up there to tamp down inflation, the greater the risk to the economy. As it stands now, many are taking the word 'recession' out of their economic predictions. But there are no guarantees. And that's why the inflation readings are so important. We will get another look at inflation on Friday, 2/24, with the Personal Consumption Expenditures (PCE) index, which is the Fed's preferred inflation gauge. That will be the last inflation report we get until the Fed's next FOMC Announcement, a little more than 3 weeks later, on 3/22. In the meantime, earnings season continues this week with another 1,163 companies set to report. In spite of the rougher last couple of weeks, stocks are still off to a fantastic start this year. And unlike the beginning of last year, which saw inflation on the rise, while the Fed embarked on one of the fastest rate hikes in history; the beginning of this year sees inflation on the decline, with the pace of interest rate hikes slowing, and an end target in sight. Couple that with improving economic forecasts, and all of the positive seasonal tendencies going for the market right now, and 2023 is shaping up to be a strong year for the market. See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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