Stocks End Lower After Another Inflation Report Comes In Hotter Than Expected

Plus 5 Just-Added Strong Buys Stocks End Lower After Another Inflation Report Comes In Hotter Than Expected [Kevin Matras - EVP - Photo] Profit from the Pros By Kevin Matras Executive Vice President Stocks End Lower After Another Inflation Report Comes In Hotter Than Expected [Stocks End Lower After Another Inflation Report Comes In Hotter Than Expected]Image: Bigstock Stocks closed lower yesterday after another hotter than expected inflation report. Yesterday morning, the Producer Price Index (PPI) showed headline inflation up 0.7% m/m vs. the consensus for 0.4%. On a y/y basis it was up 6.0% vs. last month's upwardly revised 6.5% and views for 5.5%. The core rate (ex-food & energy) was up 0.5% m/m vs. the consensus for 0.3%, while the y/y rate was up 5.4% vs. last month's upwardly revised 5.8% and views for 5.0%. Like Tuesday's CPI inflation report, which showed inflation moderating, but at a slower than expected pace, the PPI inflation report showed the same thing – moderating inflation, but at a slower pace than expected. Stocks opened lower on the news and spent most of the day trimming those losses. But in the last hour of trade, stocks headed back down making new intraday lows by the close. While it's disappointing that inflation is declining at a slower pace, it's important to remember where we came from though. For one, inflation has been on the decline for the past 7 months. Last year's summer highs saw CPI headline inflation at 9.1% y/y (now at 6.4%), while the core was at 6.5% (now at 5.6%). The PPI headline rate was at 9.8% (now at 6.0%), while the core was at 8.2% (now at 5.4%). So we've come a long way. But it's clear there's still a long way to go to get to the Fed's 2% target. We'll get another look at inflation with next week's Personal Consumption Expenditures (PCI) index, which is the Fed's preferred inflation gauge. In the meantime, and at least until the Fed's next FOMC Announcement on rates on March 22, the debate will be if the Fed goes all the way up to their estimated 5.1% forecasted terminal rate (or higher), or are the Fed Funds traders correct in their prediction that the Fed will call it quits at the 4.75%-5.00% range (midpoint of 4.88%)? The recent rally has shown that more and more people are believing that a soft landing is possible. But the higher rates have to go, or the longer they have to stay there to tamp down inflation, the harder that soft landing narrative becomes. In other news yesterday, Weekly Jobless Claims fell -1,000 to 194K vs. the consensus for 200K. The smoother 4-week moving average put new claims at 189.50K. The Housing Starts and Permits report saw Starts decline to 1.309 million units (annualized) vs. last month's 1.371M and views for 1.365M. Permits, however, increased slightly to 1.339M vs. last month's 1.337M, but under expectations for 1.350M. And the Philadelphia Fed Manufacturing Index sank to -24.3 vs. last month's -8.9 and estimates for -7.2. Today we'll get the Leading Indicators report, E-Commerce Retail Sales, and Import and Export Prices. The hotter than expected inflation reports have weighed on stocks this week. But in aggregate, the better than expected economic reports, including the recent employment report, shows the economy is not likely to fall into a recession anytime soon. And for that, it's unlikely the market tries taking out last year's lows. For now, the trend is up. Inflation is declining. The economy is growing. Earnings are largely better than expected. And the seasonals surrounding the market right now are all pointing higher. 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