Inflation and the Fed once again are taking center stage for investors. First, were signs of wages inflation being hotter than expected last Friday. Next comes an unwelcome increase in the Producer Price Index this Friday.
These are signs of “sticky inflation”. The kind that doesn’t fade so easy. The kind the Fed warned us about.
Oddly traders tried to shrug off the early losses this Friday…but came to their senses by selling with gusto into the close.
In my last commentary I discussed the catalysts at play for investors. Both the factors that cause bullish rallies as well as bearish drops.
The nutshell version of the article is to appreciate that the key ingredient for stock prices is the state of inflation and therefore how long the Fed will have to remain hawkish. The longer inflation stays around…the longer the Fed has high rates…the more likely to have recession and lower stock prices.
Most investors talk about the Consumer Price Index (CPI) when discussing inflation. However, the leading indicator of where that will be in the future is the related, Produce Price Index (PPI).
That’s because this report reviews the costs being taken in by companies now, that will show up as higher prices for their products and services down the road. Now you appreciate why the higher than expected reading for PPI Friday morning was not a welcome sign leading S&P 500 (SPY) futures to immediately drop from +0.5% to -0.5%…and then closing at -0.73% on the session.
What should really jump off the page for investors is…
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