Stocks and Bonds Up Despite Inflation Data

Good morning,

The Dow (+0.5%), NASDAQ (+2.6%), and S&P 500 (+1.5%) each exhibited gains for the week.  Meanwhile, taxable bonds gained 0.2% while tax-free municipal bonds fell about 0.2%.  The 10-year Treasury yield fell 0.01% to finish the week at 4.48%.

Two key inflation data, Consumer Price Index (CPI) and Producer Price Index (PPI), were reported last week, and were not good.  The CPI rose 0.5% month over month (M/M) and 3.0% year over year (Y/Y), and both were above analysts’ estimates.  Similarly, PPI data rose 0.4% M/M and 3.5% Y/Y.  Both sets of data are concerning, because it is more evidence of inflationary pressure rearing its head again.  See the chart below showing CPI for the last 10 years, and the recent uptick over the last several months.  Additionally, retail sales fell 0.9% in January, much worse than analysts’ expectations.

Source: WSJ

Contrary to the economic data noted above, the stock and bond markets were able to offset their losses from earlier in the week.  That was due to President Trump holding off on imposing widespread tariffs, vaulting the markets into positive territory.  This demonstrates that the markets seem to be responding more to the rumors of tariffs than the actual economic data itself.  Thus, we can likely expect more volatility ahead, which will almost certainly be magnified once Congress begins to discuss the budget, in which there is a deadline lurking in March.  As I’ve learned and said many times before, don’t let the headlines unnecessarily trigger emotions.

Have a great day and terrific week!

^{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.}