Bearish Inflation Reports Prompt S&P 500 Retreat from Record Highs

After breaking through the 5,000 milestone to set a new record high last week, the S&P 500 (Index: SPX) retreated from that lofty level. The index dropped 0.4% from last week’s close to end the trading week at 5,005.57.

You wouldn’t think it from that description, but the S&P 500 did manage to eke out a new record high of 5,029.73 on Thursday, 15 February 2024. But the bigger news of the week was the stock market’s response to two reports about inflation in the U.S. The first report on the Consumer Price Index prompted a 1.4% drop on Tuesday, 13 February 2024. The second report on the Producer Price Index sparked a half percent decline on Friday, 16 February 2024.

Both reports indicated higher-than-expected inflation to start 2024. Together, that new information affected investor expectations for the timing of when the Federal Reserve will begin cutting interest rates in 2024. The CME Group’s FedWatch Tool‘s projections of when the Fed is expected to start a series of rate cuts has shifted. It now projects the Fed will hold the Federal Funds Rate steady in a target range of 5.25-5.50% until 12 June 2024 (2024-Q2), six weeks later than previously anticipated.

Here is this week’s update of the dividend futures-based model‘s alternative futures chart.

Looking forward, we’re coming up on a several week long period where the echoes of past volatility in stock prices affect the dividend futures-based model’s projections. This situation arises because of the model’s use of historic stock prices as the base reference points from which its projections are developed. The next update for the chart will feature a new redzone forecast range to account for this echo effect.

In the meantime, here are the market-moving headlines for the week that was.

Monday, 12 February 2024

• Signs and portents for the U.S. economy:

• Job cuts spill beyond tech sector
• Real estate pain for US regional banks is piling up, say investors
• Oil settles little changed; demand concerns offset Middle East tensions

Bigger trouble developing in the Eurozone:

• Rising Distress in Germany Signals a Lot More Struggles Ahead
• German commercial property prices post biggest-ever drop, data shows
• Euro zone banks face new slate of risks, supervisor warns

Nasdaq, S&P, Dow end mixed as Wall Street’s bull run takes a beat ahead of CPI

• Nasdaq slips from near all-time high, Dow up modestly ahead of inflation data

Tuesday, 13 February 2024

• Signs and portents for the U.S. economy:

• Rising rents push US inflation higher; rate cuts still expected in 2024
• Labor worries, costs drag small business sentiment down by most in 13 months -NFIB
• Oil up on geopolitical tension, gains capped by fading Fed rate-cut hopes
• Number of US farms falls and size increases, census shows

Fed seen waiting longer to cut rates as inflation stays elevated

ECB minions ready to let inflation data decide next steps, bigger trouble developing in the Eurozone:

• Number of rate cuts will depend on inflation data, ECB’s Lane says
• Germany is an unfit man, economy isn’t in shape, finance minister says

Wall St ends sharply lower as hot inflation sparks sell-off

• Dow posts worst day in nearly a year, Nasdaq and S&P also slide on hot CPI data

Wednesday, 14 February 2024

• Signs and portents for the U.S. economy:

• Oil falls by more than $1/bbl on US crude build, security threat worries
• Cisco to cut more than 4,000 jobs, lowers annual revenue forecast
• Frigid temperatures chill US retail sales, factory production

Fed minions not so sure about “soft” landing for U.S. economy:

• Fed’s Barr: ‘Bumpy’ path to 2% inflation means soft landing jury still out

Bigger trouble developing in Japan, Nikkei predicts BOJ minions will keep never-ending stimulus alive:

• Japan unexpectedly slips into recession, Germany now world’s third-biggest economy

• Japan Q4 GDP unexpectedly contracts due to weak domestic demand

Japan Enters Recession With Nikkei About To Hit All Time High

Bigger trouble developing in Eurozone, ECB minions want to take some time to think about it:

• Euro zone Q4 GDP confirmed flat q/q, up 0.1% y/y
• ECB needs ‘some time’ before cutting rates: de Guindos

Nasdaq, S&P, Dow end higher as Wall Street regains footing after CPI sell-off

• Wall Street ends higher, lifted by Uber, Lyft and Nvidia

• Nvidia market cap threatens Alphabet after overtaking Amazon
• Uber hits record high after unveiling first-ever $7 bln share buyback
• Lyft CEO apologizes for the typo that sent the company’s stock up 67%

Thursday, 15 February 2024

• Signs and portents for the U.S. economy:

• Oil slips after large US crude stock build

Fed minions thinking about taking some time before acting to cut interest rates:

• Fed’s Bostic: More time needed to weigh prospect of rate cut

Bigger trouble developing for Eurozone banks:

• Explainer: European banks and their $1.5 trillion commercial property headache

ECB minions say they’re in no rush to start cutting rates:

• ECB policymakers push back on hasty rate cuts even as inflation falls
• ECB must avoid hasty rate cut, says Lagarde

Nasdaq, Dow extend rebound from CPI sell-off to second straight day; S&P closes at record

Friday, 16 February 2024

• Signs and portents for the U.S. economy:

• Strong services price increases lift US producer inflation in January
• Oil edges up as geopolitical tensions offsets weaker IEA demand outlook

Fed minions excited to hold rates where they’re at until data tells them to start cutting them, getting worried about banks’ exposure to distressed commercial real estate:

• Fed seen taking time on rate cuts amid inflation pressures

• Fed needs time, data, patience on inflation fight: Daly
• Fed’s Bostic open to summer time rate cut – CNBC

Fed’s Barr says supervisors more aggressive, honing in on interest rate risk

• US Federal Reserve releases scenarios for 2024 bank ‘stress tests’

BOJ minions say they’ll think about ending never-ending stimulus after they hit their inflation target:

• BOJ’s Ueda keeps pledge to review stimulus when inflation goal met

ECB minions say lack of productivity in Eurozone will keep inflation high:

• Euro zone’s low productivity may slow inflation’s fall – ECB’s Schnabel

Wall Street slides as hot producer price data crimps rate cut bets

• Nasdaq, S&P, Dow end lower after hot PPI data; Wall Street snaps five-week win streak

The Atlanta Fed’s GDPNow tool‘s latest estimate of real GDP growth for the first quarter of 2024 (2024-Q1) declined to +2.9% from last week’s estimate of +3.4%.

Image Credit: Microsoft Bing Image Generator. Prompt: “An editorial cartoon of a worried Wall Street bull looking backward over its shoulder at a bear. The bear has the word ‘Inflation’ written on it.”