Stocks End Lower After PPI Inflation Report, But Still On Pace To Close Up For The Week

Market Moves You Need to See Stocks End Lower After PPI Inflation Report, But Still On Pace To Close Up For The Week [Kevin Matras - EVP - Photo] Profit from the Pros By Kevin Matras Executive Vice President Stocks End Lower After PPI Inflation Report, But Still On Pace To Close Up For The Week The big three indexes closed moderately lower yesterday, but off their intraday lows. Yesterday's Producer Price Index (PPI) inflation report came in a bit higher than expected with the headline number up 0.6% m/m vs. last month's 0.3% pace and views for the same. On a y/y basis it was up 1.6%, which was above last month's 0.9%, and the consensus for 1.2%. The core rate (ex-food & energy) was up 0.3% m/m vs. last month's 0.5% and views for 0.2%. And the y/y rate came in at 2.0%, which was in line with last month. Stocks were up before the news and afterwards in premarket-trading. But after opening in the green, they quickly reversed and fell into the red. Like Tuesday's CPI, yesterday's PPI was not enough to derail plans for cutting interest rates later this year. While it shows the Fed has time to be patient, it also shows that inflation has fallen significantly since the summer peak of 2022, and cutting rates is warranted this year. With interest rates at a midpoint of 5.38%, it's already 258 basis points above the current inflation levels based on the core Personal Consumption Expenditures (PCE) rate of 2.8% y/y. (The PCE index is the Fed's preferred inflation gauge. The next one is March 29.) If one were to assume that 100 basis points above inflation is the natural rate (aka the neutral rate), to allow growth, but keep inflation steady, then bringing rates down to 3.80% is where things should be now (which is -158 basis points below current levels). That suggests far more than the 3 quarter-point rate cuts the Fed is forecasting. And shows the Fed has plenty of room to cut rates while also keeping monetary policy restrictive enough to bring down inflation ever further. While nobody is expecting the Fed to cut rates when they next meet on March 19-20, many are still expecting the Fed to begin cutting rates as early as May or June. In other news, yesterday's Weekly Jobless Claims fell -1,000 to 209,000 vs. estimates for 215,000. The smoother 4-week moving average was nearly the same at 208,000. Retail Sales rose 0.6% m/m, beating last month's -1.1%, but missing the consensus for 0.7%. And Business Inventories were flat with a 0.0% change m/m, which was under last month's 0.3% pace and views for the same. Today we'll get the Empire State Manufacturing Index, Import and Export Prices, Industrial Production, and Consumer Sentiment. We'll also get more earnings with another 84 companies on deck to report. The big three indexes are still up for the week, and we'll see if they can keep it that way today. 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