Post the Inflation Reports: How do the Markets Look?

Tom Gentile

Posted in
Big Picture

By: Tom Gentile
January 12th, 2024

2 mins read

Two key inflation reports came out this week,  The Consumer Price Index, CPI and the Producers Price Index, PPI. If you are wondering which is deemed the more important of the two or put it this way it can be viewed as the better leading index, because it takes in to account the pipeline prices that companies get for intermediate goods and services.

CCI came out Wednesday and it was hotter than expected. The market traded down pre market and continued to trade down intra-day until bonds, which were rising on the day reversed to the downside.

Figure 1: 20-trading day candle chart on TNX
Figure 1: 20-trading day candle chart on TNX

This reversal to the downside for TNX happened and if you were wondering where the money flow might have been going at that point one can make a case for it flowing in to equities.

Take a look at the next image, Figure 2 which is the 20-trading day candle chart for SPY.

Granted the day ultimately was a bearish day, where the price of the security closed lower than it opened, the SPY did rally off its intra-day lows to close higher off those lows.

This could be deemed a bullish indication of higher prices to come, but of course one day does not make trend or trend reversal and the markets needed to have follow through.

Figure 2: 20-trading day candle chart on SPY
Figure 2: 20-trading day candle chart on SPY

The PPI came out today and the numbers were reported that wholesale prices surprising dropped 0.1%, which is deemed a positive inflationary signal.

The latter of these two reports, the PPI, gives the impression inflation pressures are waning. And that is what investors are seeing as a signal the Fed may actually go ahead with the tact of cutting rates starting in March.

According to the CME Group’s Fed Watch tracker, there is a 70% chance the first-quarter percentage point cut will come at the March 19-20 meeting of the Federal Open Market Committee, (FOMC).

The markets tend to climb a wall of worry, so since we won’t know what the Fed actually does or not until then, it might bode well for the markets to at least drift a bit higher.

We have to be prepared for a move in either direction, so manage your stops and if you want to trade do so with caution and discuss the risk profile for your portfolio with your broker.

Tom Gentile
C1P: Chief 1-Percenter

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