Stocks Close Higher On Moderating CPI Inflation Report Image: Bigstock Stocks closed higher yesterday with all of the major indexes up 1% or more. The Nasdaq led the way with a gain of 2.14%. Bank stocks soared at the open. Although, they came off their highs in the afternoon after Moody's flagged six other banks for review (First Republic, Zions, Western Alliance, Comerica, UMB Financial, and Intrust Financial). No surprise there as these were the banks making the biggest downside moves when SVB collapsed. Being placed on review means they could soon find themselves being downgraded. Nonetheless, the contagion fears which gripped the market last week, and for a short time on Monday, seem to have abated after the government unveiled their plans Monday morning to fully backstop all of those depositors. It's worth noting that while the government said they would make depositors whole at Silicon Valley Bank, and Signature Bank, they made it clear they would not be coming to the rescue of the bank's shareholders. And that's likely why the 6 aforementioned banks got rocked even after those plans were revealed. That allayed depositors fears, thus preventing a run on the banks. But for investors in potentially troubled banks, there's no relief coming for them if those banks got into a bind, hence the extra volatility. And likely continued volatility for those on the downgrade bubble. But the rest of the market breathed a sigh of relief yesterday. The market also cheered yesterday's Consumer Price Index (CPI) inflation report. The headline number was up 0.4% m/m, as expected. But that was a lesser increase than last month's 0.5% pace. On a y/y basis it was up 6.0%, as expected. That too was down from last month's 6.4% pace. The core rate (ex-food & energy) was up 0.5% m/m, which was a tad above last month's pace of 0.4% and views for the same. But on a y/y basis, it was in line with expectations at 5.5%, and down a tad from last month's 5.6%. As relieved as everyone was yesterday at the CPI report, we've got another inflation report this morning with the Producer Price Index (PPI). But if that comes in as expected or better, it's possible we could see some even bigger sighs of relief, and even some new optimism that inflation, while still too high, will continue to moderate, thus meaning the Fed may not have to raise as high as some have feared after all. And that's bullish for the market. In other news, yesterday's Small Business Optimism Index came in at 90.9 vs. last month's 90.3 and views for 89.9. Today, in addition to the PPI report, we'll also get MBA Mortgage Applications, the Housing Market Index, Retail Sales, the Empire State Manufacturing Index, Business Inventories, and the Atlanta Fed Business Inflation Expectations. But again, the PPI report is the main event. And that comes out at 8:30 AM ET. Should be a busy day. See you tomorrow, Kevin Matras Executive Vice President, Zacks Investment Research |
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