Stocks End Higher, All Eyes On This Morning's PPI Inflation Report  Image: Shutterstock Stocks closed higher again yesterday with the small-cap Russell 2000, and the mid-cap S&P 400 leading the way with outsized gains of 2.45% and 1.78% respectively. In spite of Tuesday's pullback, the indexes are now up for the week (except for the Nasdaq) with one more trading day to go. (Ironically, the Nasdaq, which has been the top performer this year, and still is (up 5.96% YTD) (not mention last year), needs another 0.53% to get positive for the week.) But everything else is in the green, and poised to notch another up week. Quite frankly, Tuesday's report wasn't as bad as the reaction made it seem. Headline inflation fell from 3.4% y/y to 3.1%, but came in above expectations for 3.0%. And the core rate (ex-food & energy) came in at 3.9%, which was in line with last month's reading, but above the consensus for 3.7%. But as I wrote later that day, 'one less than optimal report, however, is not likely to alter the Fed's thinking.' And that, 'it all felt a bit overdone.' Those sentiments were echoed the next day from Austan Goolsbee, the President and CEO of the Federal Reserve Bank of Chicago, when he said what many in the market were already thinking by then, which is, "let's not get amped up on one month of CPI that was higher than it was expected to be." He continued by saying, "if you see inflation up a little bit, that doesn't mean that we're not on the target to get to 2%. We can still be on the path even if we have some increase and some ups and downs --- so let's not get too flipped out." The market took that to heart and has been rallying ever since Tuesday's overreaction. Nonetheless, it does put more pressure on subsequent inflation reports to see if Tuesday was an anomaly, or if we can expect to see the rate of inflation decline at a slower pace or even pause from here. And we'll get the next look at inflation with this morning's Producer Price Index (PPI). Tuesday's CPI tracks retail inflation. The PPI tracks wholesale inflation. The consensus is calling for the headline number to be up 0.1% on a m/m basis, and 0.7% on a y/y basis vs. last month's 1.0% pace. The core rate is expected to be up 0.1% m/m as well, with the core rate coming in at 1.7% y/y vs. last month's 1.8%.
In other news yesterday, Weekly Jobless Claims fell by -8,000 to 212,000 vs. estimates for 219,000. Retail Sales missed expectations by falling -0.8% m/m vs. last month's 0.4% and views for -0.1%. Ex-vehicles and gas it was down -0.5% vs. last month's 0.5% and views for 0.2%.
And the Philadelphia Fed Manufacturing Index rose to 5.2 from last month's -10.6 and estimates for -9.0. Today we'll get the Housing Starts and Permits report, and Consumer Sentiment. But again, the main event will be this morning's PPI inflation report. That comes out at 8:30 AM ET. Note, the markets are closed on Monday, 2/19, for President's Day. So today is the last trading day before a 3-day weekend. Add in option expiration today, and you could see increased volatility. But if all goes well, stocks will build upon their impressive rally this week. Have a great 3-day long holiday weekend. See you on Tuesday,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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