The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Cooler
PPI (2.6% vs 3.3% est & 3.1% prior revised from 3.3%) was much cooler than expected. S&P futures shot higher and bond yields came down. FOMC probabilities moved a little. The S&P 500 opened around +27 points, tacked on about 15 more, printing fresh all-time highs. Prices rolled over around 10:30 AM. The tape drifted lower over the day, giving up the big gains of the morning. Capital flow was higher, about 120%.
The knee-jerk reaction of the morning was that inflation was coming down and so the Fed would have no reason to wait and see anymore. Fed Funds futures markets didn’t change much but equity investors breathed a sigh of relief. Equities assumed that 25-50 bips was in the bag for next week and that October would also deliver a rate cut. The reaction was that the Fed could not deliver a curve ball in the form of holding rates steady.
The equity market did not infer any sort of worry about the economy and recession risk did not become the topic du jour.
Like so many surprising data points and subsequent market reactions, we look to the next data point for more clarity.
CPI (2.9% est vs 2.7% prior) tomorrow will be scrutinized through the lens of the PPI data. Talk across the Street worries about whether producers are absorbing tariffs and other inflationary pressures or passing them along. CPI, if it looks qualitatively different than PPI, could stir up all kinds of contradictory investment theses.
I don’t know what to expect. I think a cooler number favors the bulls but I wonder if there is even such a thing as too cool? Perhaps equity investors have no concern about recession risk and they just want rates to come down faster and sooner?
Let’s find out.
See you tomorrow.
-Mike
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