The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Confusing signal.
Markets were quiet and flat when July PPI (3.3% vs 2.5% est & 2.3% prior) shook everything up. Under-the-hood numbers looked even worse. PPI is strongly signaling inflation is a problem, probably due to tariffs finally passing through the pipes of commerce. Equity futures dropped quickly and yields climbed quickly. The S&P opened down about 20 points bottomed shortly after and recovered by 10:30 AM. Dip-buyers did their thing. The tape fell and recovered in the midday and afternoon and we finished without drama.
Wait-and-see by the Fed looks more logical than ever. While the market hasn’t significantly re-priced Fed easing expectations, the door is now open for the Fed to hawkishly surprise if a few more inflationary data points show up before September 17.
The investment landscape has *not* shifted significantly today, so the dip-buyers aren’t dissuaded. The *possibility* of a shift grew however. It grew to something meaningful and worthy of consideration. If dovish inflationary data resumes printing, today will be quickly forgotten as we march higher. However, if hot data shows up, we could be looking at a sea change.
The equity market is beholden to anticipated rate cuts this year. If those cuts evaporate, so will the gains of the last few months, maybe even the whole year. The severity of the data and the Fed response will be critical. Bad data and a hawkish Fed might kill the bull. Who knows. The possibility might be low, but it exists.
As things stand, the market doesn’t want to change but it is preparing to, should the data paint an inflationary picture.
See you tomorrow.
-Mike
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