Stock Market Ends Higher as a Wage Survey Eased Concerns About the CPI

February 14, 2023

minute read

The US stock markets closed Monday with broad gains as a survey showing Americans have drastically reduced their expectations for household income growth pointed to a better outcome for Tuesday's consumer price data than was previously expected.

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There was an increase in the S&P 500 by 1.1%, with each sector saving energy in the green sector. There was a 1.6% gain for the tech-heavy Nasdaq 100 index after it suffered its first weekly loss of 2023. Since the beginning of the year, the Dow Jones Industrial Average has gained the most points.

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Despite the fact that the New York Federal Reserve consumer survey in January showed little change in inflation expectations for the next year, Adam Crisafulli of Vital Knowledge found the results "moderately reassuring.".

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“It is positive (for stocks) to note that the household income data points to wage disinflation expectations over the next few years,” he wrote, noting it was the largest one-month decline in the series over the past nearly 10 years.

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A report in the New York Times indicates that the Biden administration plans to sell more crude oil from the Strategic Petroleum Reserve, a key inflation component, as a result of a report. A barrel of West Texas Intermediate crude fell below the $80 mark on the futures market.

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The two-year Treasury yields rose to a new high for the year last week when the much stronger-than-expected January employment figures were released, following a rise of 23 basis points last week.

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With inflation and jobs data coming out later this week, traders are reassessing how high US interest rates will rise this year. The Fed rate is now expected to peak at 5.2% in July, up from less than 5% a month ago, which has fueled bets that it will top out at 5.2%.

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It was a good day for equity indexes on Monday despite warnings from a number of prominent strategists. Investing in bonds is a wise move, according to JPMorgan Chase & Co.'s Marko Kolanovic, because a recession is not yet priced into the equity market. The team led by Morgan Stanley's Michael Wilson argued that US stocks are ripe for a selloff after prematurely pricing in a pause in Fed rate hikes.

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It has been widely speculated that equity and credit markets will have a soft landing due to the rise in short-term rates and inflation. However, Lisa Shalett, chief investment officer at Morgan Stanley Wealth Management, wrote, “We view recent action as another bear market rally, boosted by a surge in US dollar liquidity, weak positioning, and short covering.” Furthermore, it needs to be noted that other capital markets are not confirming this optimistic view, with economic data indicating complex crosscurrents arising from the extraordinary reopening of COVID."

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The market rally could continue over the next few months, according to Goldman Sachs Asset Management's Alexandra Wilson-Elizondo.

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“It has always been our belief that the handover from goods disinflation to services disinflation would take time, and that the Fed would have to remain in the restrictive territory for that to happen,” she said during a phone conversation. “Consequently, we have maintained a cautious stance in our portfolios, but we have kept an eye out for real fundamental catalysts that could lead to those relative value trades, such as the reopening of the China market."

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The positive moves in equities on Monday were due to investors seeing the glass as "half full," according to B. Riley's chief market strategist Art Hogan.

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In a phone interview, he said the market currently has more tailwinds than headwinds. “The CPI report shows that there is a lot more going right than going wrong and investors are reacting accordingly."

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Tunkel says inflation concerns will soon be replaced by economic growth concerns, chief US equity strategist at BCA Research.

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During a telephone interview, she explained that the market is already celebrating a soft landing, they're celebrating the end of inflation," she said. Despite this, I don't believe that we are out of the woods yet because I think there is a narrow window between inflation turning and growth slowing in a more acute way in the near future. Equities in Europe moved higher on optimism that the economy will continue to grow at a strong pace. Construction, industrial goods, and consumer stocks contributed to the rise in the Stoxx 600 index, while energy and real estate stocks underperformed in the same period.

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This has been the first time in three months that the inflation rate in India has breached the top end of the central bank's target of 6.5%. As a result of news reports that Kazuo Ueda would be selected to become the next governor of the Bank of Japan, the yen has weakened past 132 per dollar after whipsawing Friday. On Tuesday, the Japanese government will officially announce the nomination of the new Governor of the Bank of Japan.

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The US government has fired down an unidentified object it tracked over Michigan, according to US officials familiar with the matter, and traders are keeping a close eye on geopolitical developments as well. There has been a fourth shooting down of a balloon or high-flying craft over the US or Canada in the last eight days.

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Key events:

At the New York Bankers Association event on Tuesday, New York Fed President John Williams delivers the keynote address on US CPI, UK jobless claims, and Eurozone GDP.
Tuesday is the nomination day for the new governor of the BOJ
Retail sales in the US, UK, and CPI on Wednesday
Loretta Mester speaks at Thursday's Global Interdependence Center event about US jobless claims, Australian unemployment, and the Cleveland Fed.
Friday's CPI in France and GDP in Russia

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Market movements include:

Stocks

The S&P 500 futures rose 1.2% at 4:32 p.m. New York time, the most since Feb. 7
Dow Jones Industrial Average futures rose 1.1% at 4:32 p.m. New York time, the most since Jan. 31.
For the third straight day, the MSCI World index fell 0.3%, the longest losing streak since Jan. 19.

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Currencies

As of Feb. 1, the euro had its largest closing gain since Feb. 1 with a gain of 0.4%
Despite a 0.6% gain, the British pound closed the day at its highest level since January 17.
As a result, the Japanese yen fell by 0.8% to 132.41 per dollar

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Cryptocurrencies