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Mixed Economic Data Send Stocks Slightly Lower
Equity markets fell slightly during a volatile week amid mixed inflation and economic data. Global equities (represented by the MSCI All Country World Index) were down -0.24%, and domestic stocks (represented by the S&P 500 Index) were down -0.20%.
Two important inflation gauges were released last week being the US Consumer Price Index (CPI) and the Producer Price Index (PPI). CPI continued its disinflationary path, however, at a slower pace than expected. Headline CPI rose 0.5% in January versus a 0.1% rate the month prior. On an annual basis, consumer prices rose 6.4%, slightly lower than the year-over-year increase in December of 6.5%. Higher shelter prices accounted for nearly half the increase, but the core services CPI excluding shelter fell slightly to continue the trend down from its peak. PPI rose more than expected on a monthly basis up 0.7% in January, the largest monthly gain since June and following a -0.2% reading in December. However, producer prices have continued their decline on an annual basis falling to 6.0% from June’s 11.2% increase.
US retail sales for January surprised on the upside rising 3% on a seasonally adjusted basis versus an expected 2%. This increase offset December’s decline and broke a two-month streak of falling sales. Gains were across many categories including a 17.5% increase in department store spending.
Markets digested the inflation and economic data releases with equity markets falling over 1% in the second half of the week and treasury yields rising to 3-month highs. The 2-year treasury rate rose to 4.62%, a level in which it hasn’t reached since November, while the 10-year treasury rose to 3.86%, continuing an inverted yield curve. Yields rose as investors assessed the potential for the Fed to increase the pace of future rate hikes and the terminal value of their benchmark rate.
Personal Consumption Expenditures Index
This week we look ahead for an updated Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge. Last month’s reading of a 5.0% annual increase marked the lowest reading since September 2021.
I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.