The Buzz on Business for February 13th 2024

If you thought that rate cuts were coming, maybe in March, but surely no later than May. If you thought that the stock market was just a series of steps upward, ever upward. If you thought inflation was a thing of the past, you were wrong.

Stock Market Report

If this podcast thing doesn't work out. We're gonna start a fortune-telling business. We've been saying for several days that, to us, this market looked like there was something going on beneath the surface that wasn’t good. Well, it surfaced on Tuesday, and the thing was inflation. Stocks sold off hard from open until close.

But we've seen this before. The world is not coming to an end, no matter what they’re saying on the six o’clock news. Although markets may consolidate here for a while, maybe head down a bit more before heading back up once again.

• The Dow Jones Industrial Average was off 1.4%. That's 525 points, and it closed at 38,273.
• The Standard and Poor's 500 was also off 1.4% It closed—below 5000—at 4953, down 69 points.
• The NASDAQ Composite was off 1.8% and closed at 15,656, off 287 points.
• The small-cap Russell 2000 had an even tougher go of it. It was down a full 4 percent, 83 points, and closed in 1966.
• The funds we follow for our Vertical Asset Allocation Experiment we've been running so far this year and on which listeners of our Premium podcast episodes will, this week, get an update, the RSP. Which is the S&P 500 equal weight index fund was off 1.6%.
• The SOXL, the Philadelphia Semiconductor Index with three-to-one leverage, was off 5.9%,

Bond Market Report

Bonds had it no better. Nothing but red numbers all up and down the yield curve on Tuesday.

• The 2-year treasury closed at 4.664%. That's up 19 basis points.
• The yield on the 20-year was up 12 ticks and closed at 4.597%.

Oil, Gold, and Bitcoin

• Oil had a more or less normal day; in the midst of all this chaos, it was up $0.88, and a barrel will now set you back $77.76.
• Rates were up. That must mean gold was down, and it was. Gold sold off $25.80 and closed at $2007.20 a troy ounce.
• Bitcoin likewise had a down day, but it was down a lot more earlier in the day. It closed at $49,510, off $390 dollars on the session.

End of Rate Cuts? Could Inflation Force Fed to Rethink Policy?

So what the heck happened on Tuesday? Inflation happened. Let's go over all of the numbers. I think they're kind of important.

The month-over-month Consumer Price Index for January was up 0.3% when economists and the Street were expecting 0.2%. And it came in at 0.2% last month.

The year-over-year CPI? 3.1%. Versus expectations of 2.9%. Keep in mind the Fed’s target is 2.0%.

And then we have the core. CPI, which excludes food and energy, which tend to be more volatile. Well, it was up 0.4%, month over month, versus an expectation of 0.3% and 0.3% last month.

The year-over-year number. 3.9% again versus expectations of 3.75%.

3.9% inflation rules out rate cuts. Rules them out. It was that realization that blew like a bitter wind down the concrete canyons of lower Manhattan, that whipped up the selling blizzard.

We will see how the housing market and industrial production look later this week. But with inflation running close to 4%. I don't think we can rule out rate increases.

More Data Probably Won’t Matter

We get another peek at inflation this Friday when the producer price index complex rolls out. But from where I sit, that ship has sailed. The Fed is going to need lots more evidence that inflation is irrevocably in retreat before it and Wall Street traders can have any confidence that rate cuts are, or even should be, back on the table.

And let's face it. In spite of higher rates, rates that have been with us for over two years now, the economy is hardly falling apart. The labor market continues to exceed expectations. Housing, which is normally the first thing to go when rates go up, remains strong. Manufacturing, which has been in the doldrums for two years, is getting back on its feet. This economy is not in trouble. The thing that will kill it is inflation.