PPI Data Awaited After Monday's SPX Recovery
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Deep Dive
What is the significance of the December Producer Price Index (PPI) data released today?
The December PPI data, expected to show 0.3% monthly growth for PPI and 0.2% for Core PPI, is crucial for assessing inflation trends. Year-over-year core PPI growth is anticipated to rise to 3.7%, up from 3.4% in November, indicating persistent inflationary pressures.
How did the S&P 500 perform on Monday, and what factors contributed to its recovery?
The S&P 500 recovered from early weakness to close slightly higher, adding 9.18 points or 0.16%. This recovery was driven by rotation out of tech and communication services into sectors like energy and healthcare, which lagged last year.
What are the inflation expectations according to recent surveys?
The University of Michigan Preliminary January Consumer Sentiment Survey reported five-year inflation expectations at 3.3%, the highest since 2008. The New York Fed December survey showed slightly lower five-year inflation expectations at 2.7%, down from 2.9% in November.
Why are Treasury yields rising, and what impact does this have on the market?
Treasury yields are rising due to concerns about higher inflation linked to strong economic growth, reinforced by the recent jobs report. This yield volatility is a headwind for the equity market, which is down nearly 5% from its early December peak.
What is the outlook for Fed rate cuts in 2024 and 2025?
The strong jobs report has likely ruled out Fed rate cuts in the first half of 2024, and there may be no rate cuts at all in 2025. The CME FedWatch tool indicates a 98% chance of a Fed pause in January and an 80% likelihood of no rate cut in the first quarter.
How did major tech stocks perform on Monday, and what were the key drivers?
Tech stocks, particularly Nvidia and Apple, struggled on Monday. Nvidia fell 2%, dropping below its 100-day moving average, while Apple continued to falter. The Biden administration's new export restrictions on chip technology also weighed on the sector.
What sectors led the S&P 500 on Monday, and what does this indicate?
Energy and materials led the S&P 500 on Monday, with defensive sectors like healthcare and real estate also performing well. This reflects ongoing rotation out of tech and communication services into sectors that lagged last year.
What is the expected impact of bank earnings on the market?
Bank earnings, starting with JPMorgan Chase, Wells Fargo, Citigroup, and Goldman Sachs, are expected to be strong, benefiting from a rising yield curve that makes lending more profitable. Potential regulatory changes under the new administration could also support merger and acquisition activity.
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