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The Fed’s Christmas List

Morning in the Markets

Briton Ryle by Briton Ryle
December 9, 2022
in Analysis
0
One Continuous line drawing of Christmas Present box with ribbon and bow. Festive present and Wrapped surprise package in simple linear style. Doodle vector illustration

The stock market is always a battle between the bears and the bulls, the buyers and the sellers, fear, and greed. When one side appears weak, the other will press its advantage. It’s a simple explanation that puts yesterday’s rally in a useful framework.

That is, support at 3,920 on the S&P 500 held for two consecutive days, and that was enough strength to give investors confidence to take stock prices higher. 

Was there any new info that needed digesting? Not really. The Fed didn’t say anything, there wasn’t any significant earnings news, no important economic data…

That changes today, however, when November's Producer Price Index (PPI) is released this morning. The PPI measures how much the companies that make stuff are paying for the materials they need to make stuff. In other words, it measures inflation at the company level, the assumption being that higher prices at that level will be passed on to the consumer, which is then measured by the Consumer Price Index (CPI).

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Today’s PPI is the first inflation data we get from November. And it was expected to show a pretty sizable decline. October’s year-over-year rise was 6.7%. The November read was expected to show a year-over-year rise of 5.9%. 

The Fed was praying to Santa to get its Christmas wish: that this report would come in as expected or better. Because as we discussed yesterday, bond prices are pricing in rising expectations for a recession. Fed Chairman Jerome Powell does not want to go down in history as the guy that ignored inflation for nearly a year and then caused a recession to fix his mistake.

It would be better for everyone if inflation would cooperate and retreat under the weight of the rate hikes that have already happened. Sure, that’s what you’d call a Goldilocks scenario. And it’s all Powell’s got right now. 

So, I don’t know what Powell did to get on Santa’s naughty list, but he is not getting his Christmas wish. Instead of the expected decline for November’s PPI, it actually showed a slight gain. 

And that’s going to set off more talk of recession, projections that the so-called “terminal rate” for interest rates will now be higher than 5.25% and, sadly, very likely send the stock market on a new leg lower. 

3,920 on the S&P 500 is very unlikely to hold as support, given this new inflation report. The 50-day Moving Average (MA) for the S&P 500 sits at 3,834, likely the next stopping point. And if next week’s CPI report is also worse than expected, the S&P 500 will head lower still. 

That’s your “Morning in the Markets,” sorry, it’s not better news.

Take care, and I’ll talk to you soon.

brits-sig

Briton Ryle
The Profit Sector

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Tags: BondsConsumer Price Index (CPI)Interest RatesProducer Price Index (PPI)RecessionThe Fed
Briton Ryle

Briton Ryle

I’ve been trading, investing, and sharing my insights with individual investors since 1998.  Back then, the internet was not a very useful research tool. Armed with a library card and a huge budget for the printer, I’d scroll the microfiche for Wall Street Journal and Financial Times articles. I bought technical books on wireless technology and fiber optic networks. I traveled to Chicago to learn the secrets of stock options trading directly from the experts on the floor of the CBOE.  I’ve attended and spoken at more investor conferences than I can remember…. All because I’ve always taken my responsibility to my readers and subscribers very seriously. I refuse to parrot popular opinion, offer up half-baked ideas or publish incomplete or half-hearted research.  There is no shortcut to deep research... becoming as close to an expert on topics, trends, and technology as possible. And the rewards are life-changing. The very first stock I ever recommended was South Korea’s SK Telecom. My readers enjoyed a 150% profit in a matter of months.  And after 25 years, I’ve helped tens of thousands of readers change their financial fortunes.  A few months ago, I donated all my suits to Goodwill, pulled my name off the list of speakers for the big investor conferences, and left the big city for Southern Georgia. The plan was to retire to the banks of a tidal creek that splits off from the St. Mary’s river as it enters the Atlantic between Cumberland and Amelia islands... and trade stocks when I felt like it. But, I guess retirement wasn’t for me after all. I’m back, and this is gonna be something special. 

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© 2023 The Profit Sector, LLC. All rights reserved. Our website provides stock market research, commentary, and analysis. Information is provided “as is” and solely for information purposes, not for trading purposes or advice.

Nothing on this website should be considered personalized financial advice. Any investments recommended herein should be made only after consulting with your personal investment advisor and only after performing your own research and due diligence, including reviewing the prospectus or financial statements of the issuer of any security. The Profit Sector, its managers, its employees, affiliates and assigns (collectively "The Company") do not make any guarantee or warranty about the advice provided on this website or what is otherwise advertised above. The Company is not registered or licensed by any governing body in any jurisdiction to give investing advice or provide investment recommendation. The Company is not affiliated with, nor does it receive compensation from, any specific security. To the maximum extent permitted by law, the Company disclaims any and all liability in the event any information, commentary, analysis, opinions, advice and/or recommendations provided herein prove to be inaccurate, incomplete or unreliable, or result in any investment or other losses.

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