Stocks and Bonds Soar on Tame Inflation Data

Good morning, and Happy Winter Wonderland and Martin Luther King, Jr. holiday,

The Dow (+3.7%), NASDAQ (+2.4%) and S&P 500 (+2.9%) each exhibited strong gains last week.  Similarly, taxable bonds gained 1.0% and tax-free municipal bonds were up about 0.4%.  The 10-year Treasury yield fell 0.16% to finish the week at 4.61%.

Two key inflation reports – Producer Price Index (PPI) and Consumer Price Index (CPI) were released last week, and both were unexpectedly lower.  The core PPI (excluding volatile food & energy) was unchanged for the month, compared to an expected rise of 0.3%.  Core CPI and headline CPI rose 0.2% over the prior month and 3.2% over the prior year, both less than expected.  Retail sales also came in strong, but a look under the hood suggested that the lower end consumer is seeing increasing stress, while the middle- and upper end consumers continue their spending.

The tame inflation reports were met with enthusiasm by both stock and bond investors.  This is particularly true because inflation readings over the past few months have been rising and were met with downward pressure on the stock and bond markets.  Enthusiasm, volatility, and uncertainty may be the themes for the coming weeks and months, as President Trump takes office today.  To top it off, this is also when we begin corporate earnings season, so there will be a lot for investors to digest over the next several weeks.

Have a great day and terrific week while trying to endure the cold weather here in the Northeast.

^{Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.}

^{The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.}