The Bears | January 21, 2022 | FFS

The week was all about inflation data, but have we inflated its importance?

Monday S&P 500 0.04% | NASDAQ 0.03%

Markets were little changed on the day. There was very little economic news out before the bell on Monday. The week will likely be sharply focused on Wednesday when we get the updated figures for March inflation. The report is expected to show an increase from February.

Tuesday S&P 500 0.14% | NASDAQ 0.32%

Small business sentiment slipped in March to the lowest level since January 2013! Even still, markets advanced ahead of inflation data on Wednesday. Growth stocks out-performed which signals that an increase of inflation data would likely not hamper growth stock leadership. This is important because the rate cuts expected later this year would favor growth stocks most.

Wednesday S&P 500 0.95% | NASDAQ 0.84%

Consumer Price Index (CPI) information showed that inflation has stopped cooling. A 0.1% reading was replaced with a 0.4% reading. The main culprits were transportation services, energy, and home services. The markets moved sharply lower, but likely on the Federal Reserve Board (FRB) minutes release, rather than on CPI data. FRB Minutes showed concerns that inflation was stagnating, endangering the likelihood of the FRB cutting rates later this year.

Thursday S&P 500 0.74% | NASDAQ 1.68%

Producer Price Index (PPI), which is a proxy for wholesale inflation rose less than expected. Initial jobless claims fell on the day supporting a strong job market. The weaker than expected inflation data led to a bounce back rally by markets. Little was changed about rate cut expectations moving forward however, given the FRB minutes from March.

Friday S&P 500 1.46% | NASDAQ 1.62%

Michigan Consumer Sentiment is projected to slip, but remains in the high 70’s. Financial firms got earnings season underway on Friday and they did not impress. The slide on Friday solidified a down week for equities. The Nasdaq led markets lower on the day, but its Thursday rebound mitigated losses for the week.

Conclusion S&P 500 1.56% | NASDAQ 0.45%

The week ended well into the red. The fall represented the worst week for the S&P 500 since January. In January the focus was on the markets accepting that the FRB may only cut rates three times this year. This time it is on the realization that perhaps the FRB may not cut rates at all. As of now investor expectations are that the FRB will cut rates one, maybe two times (September and December). The meeting in two weeks should provide more clarity. Even with this change to rate cut expectations, it will be interesting to see what action the FRB takes with Quantitative Tightening. If they do start to slow the selling bonds that should provide some relief.

~ Your Future… Our Services… Together! ~

Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:

Facebook | Twitter | LinkedIn

FOR MORE INFORMATION:

If you would like to receive this weekly article and other timely information follow us, here.

Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.

Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.

The bears are asserting themselves right now. Will the bulls be back this week to fend off the Bearish trend?

Monday

Happy Martin Luther King Jr. Day!

Tuesday

Markets opened the week as they had the prior week. Volatility was up and markets were down early! One concern was the potential for flight disruptions as wireless carrier giants roll out 5G near airports. The use of 5G has companies utilizing airwaves that had previously not been used. The concern being that they could provide potential interference for airlines.

Wednesday

The S&P 500 opened higher on Wednesday, but quickly faded into the red. At the open, equities were higher and fixed income was higher as well. Typically buying in fixed income is viewed as a defensive move. The equity sell-off that occurred into the close did not get accompanied by a sell-off in fixed income. Those continued to gain. This is a signal of perhaps a more bearish trend to come. The S&P 500 ended up losing 0.97% on the day. The NASDAQ, which lost 1.15% on the day, entered technical correction territory (being down more than 10% from it’s high). The S&P 500 is off 5.5% from it’s high on January 3^rd.

Thursday

Markets opening strongly in the green. The S&P 500 was up more than 1.5% early on. Markets began to fade around 12:30PM EST and never looked back. The S&P 500 ended up falling 1.19% and the NASDAQ led the way, down 1.39%. Most of the losses came in the final hour of trading.

Friday

Movement within markets continued into the red on Friday, simply reinforcing the action from the entire week. Interest rates at the 10-year level fell. This is a more traditional reaction to an equity sell-off. The S&P 500 ended up dropping another 1.89%. The Nasdaq continued to lead the way, being down 2.72%.

Conclusion

The S&P 500 lost 5.68% last week and is down 8.31% from its January 3^rd closing high. The Nasdaq 100, which has more growth focused positions, lost 7.49% last week and 12.88% from its November high. The controlled nature of this sell-off tends to reflect a more measured corrective environment. With the Federal Reserve Board meeting next week, all eyes will be on interest rates!