Buzz on Business for Friday, January 12^th, 2024

All of us here at the Ministry of Truth were gathered ‘round the Telescreens, eagerly awaiting the inflation numbers that were released at 8:30 am ET, yesterday morning. When they hit, we said, “Oh Oh! Interest rates are going up and stocks are gonna get crushed!”

We were wrong!

Stock Market Report

Inflation came in higher than expected, more on that in a minute, and markets, still in the overnight session, which is thinly traded and subject to some extreme movement, did exactly what you’d expect. Rates rocketed higher, and stocks fell through the floor. The S&P 500 futures contract, which trades all night, had been up by about ten points. When the news hit the wire, it fell sixty-six points. Whoa!

But the Bulls fought back. The indexes actually opened with a small gain, then bounced around throughout the day and finished mixed. Still, what had looked like a ring-side seat for an epic beat-down turned out to be a twelve-round draw.

We’ll take it!

• The Dow Jones Industrials managed a minuscule fifteen-point gain; for those keeping score at home, that’s four-one hundredths of a percent. They closed at 37,711.
• The S&P 500 was down—seven-one-hundredths of a percent—you just don’t get that kind of precision on other podcasts. The S&P closed at 4,780, off three points.
• The Nasdaq Composite closed at 14,970, exactly where it closed on Wednesday. No change. Flat. We’re going to put an image from the Giant Quote Machine in the show notes just to show how incredibly dramatic no-change can be.
• The RSP, the S&P Equal Weight fund, was off three-tenths of a percent. The SOXL, the Semiconductor Index with three-to-one leverage, was up one percent on the session.

Bond Markets

Bonds likewise took the inflation news hard and rates flew off the charts but ground lower throughout the day and managed a gain. Rates were down across the board. It feels weird to even say that.

• The yield on the 2-year treasury was off twelve basis points. It now yields 4.249%.
• The 20-year closed at 4.304%, that’s off four ticks, and the 2-year/20-year spread has turned positive.

Oil and Gold

• Oil was up $1.52 and closed at $72.77 a barrel.
• Gold joined in some of the volatility fun and settled at $2,019.20 off $8.60 a troy ounce.

Inflation Bites, But Markets Show Unexpected Resilience

So, what happened to inflation?

Well, it came in above expectations and, as we never tire of saying, Wall Street is an expectations game.

The month-over-month Consumer Price Index, which had been beating expectations in the last three months or so, came in at 0.3% versus expectations of 0.2%. And let’s face it, 0.2% is still too high and about 20% above the Fed’s target.

Oh, and the Fed sets those interest rates that traders so desperately want cut.

The rest of the inflation numbers came in at or above expectations mostly above. And, to add fuel to the fire, the labor market remained strong. Initial and continuing claims for unemployment came in well below expectations.

Why cut interest rates if job growth continues even when rates are high?

So, why did stocks and bonds fight off this devastatingly bad news and end the day with modest gains or modest losses? Beats me. I suppose, if pressed, I’d say that the strong economy and expectations for fourth-quarter earnings more than offset fears of higher rates for longer. But, even as I say it, I’m not sure I believe it.

We get the Producer Price Index today. We’ll be reporting all of that to you on Monday morning. All you’ve got to do is keep it right here!