The opinions expressed below are my own and do not necessarily represent those of Visdom Investment Group, LLC.
Less likely
PPI (4.7% vs 4.9% est & 5.5% prior) was a bit cool although some subsets of the data had a little heat. Markets didn’t really react much to the release however. Once the market opened, stock market bulls took over and Treasury yields fell substantially. Crude helped as well, falling nicely on the front end of its curve. The S&P made new all-time highs today and it looks like a fresh breakout for US stocks. Capital flow was light again though, 85%.
The PPI data preserves the narrative that inflation is coming down and that the Fed doesn’t have to *hike* at the September meeting. Fed Funds now price a hike then with 35% probability. That probability has now dropped from 50% to 40% to 35% in three sessions. I think it will drop further over time. The case to hike rates is weaker today that it was a the last FOMC meeting. This is a new Fed of course and their transparency is less so one can never say never.
Still, the stock market has been confident that the Fed wouldn’t hike and the bond market is starting to change its view. When these two markets were at odds a bit ago, we discussed that one market would have to come to the other. That appears to be happening now. Treasuries are shifting towards the non-hiking future. If this continues, stocks will benefit greatly.
With the S&P breaking higher, we should anticipate some follow-on tomorrow and next week. Chart-followers just got the green light with today’s highs. Momentum players may see the start of a streak and hop on. The usual buy-the-dippers, don’t have a dip to exploit but they certainly will jump in if something small happens in the near term.
Stocks are looking good again. The narrative just was helped with the lessening of the likelihood of a Fed hike. That narrative can sustain for a while too. It’s going to take some very unusual data for the story to flip.
See you tomorrow.
-Mike
Visdom Market Commentary
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