Inflation hot, market not

In what has become a familiar refrain, last week inflation data continued to surprise to the upside, interest rates climbed, Russia dashed hopes for a cease fire in Ukraine, and stocks continued their search for sustained upside momentum.

Despite a strong bounce on Wednesday, the S&P 500 (SPX) surrendered its early gains on Thursday to end the holiday-shortened week near its lows:

The headline: US indexes mixed as inflation gauges hit fresh highs.

The fine print: While the latest Consumer Price Index (CPI) reading was a little hotter than expected, the “core” CPI number (which excludes energy and food prices) was a little below estimates. But the Producer Price Index (PPI) came in hot across the board, and its 11.2% year-over-year headline increase was the biggest on record. A big contributing factor: crude oil prices, which in March spiked to their highest levels since 2008.

The number: 2.83%, the 10-year T-note yield’s high on Thursday—a level it last touched in December 2018.

The quote: “We have again returned to a dead-end situation for us.” Russian President Vladimir Putin, closing the door on Russian–Ukrainian peace talks last Tuesday.¹

The scorecard: The small cap Russell 2000 (RUT) was the only major US index to gain ground last week:

Sector roundup: The strongest S&P 500 sectors last week were materials (+0.7%), industrials (+0.4%), and energy (+0.3%). The weakest sectors were information technology (-3.8%), communication services (-3%), and health care (-2.9%).

Highlight reel: Veru (VERU) +182% to $12.28 on Monday (and +43% to $14.30 on Wednesday), Sierra Oncology (SRRA) +39% to $54.75 on Wednesday. On the downside, Bicycle Therapeutics (BCYC) -39% to $28.81 on Monday, NanoString Technologies (NSTG) -34% to $21.87 on Wednesday.

Futures action: After falling to its lowest level ($94.83/barrel) in nearly a month last Monday, June WTI crude oil (CLM2) pivoted higher, tagging $104 on Wednesday and closing Thursday at $106.38. June gold (GCM2) rallied to a five-week high of $1,985.80/ounce on Wednesday before ending the week at $1,974.90. Biggest up moves: May heating oil (HOK2) +18.2%, May natural gas (NGK2) +15.1%. Biggest down moves: April bitcoin (BTCJ2) -8.2%, April ether (ETHJ2) -7%.

Housing numbers dominate the week’s economic calendar:

●Today: NAHB Housing Market Index (10 a.m. ET)
●Tuesday: Housing Starts and Building Permits
●Wednesday: Existing Home Sales, Fed Beige Book
●Thursday: Leading Economic Indicators Index
●Friday: S&P Markit manufacturing and Services PMI (flash)

Earnings season started with big banks mostly topping estimates. This week the calendar gets a bit more crowded—here are some highlights:

●Today: Synchrony Financial (SYF), Bank of America (BAC), J.B. Hunt Transport (JBHT)
●Tuesday: Halliburton (HAL), Fifth Third Bancorp (FITB), Johnson & Johnson (JNJ), Lockheed Martin (LMT), Netflix (NFLX), International Business Machines (IBM)
●Wednesday: Lam Research (LRCX), United Airlines (UAL), Procter & Gamble (PG), Abbott Laboratories (ABT), Lithia Motors (LAD), Alcoa (AA), Tesla (TSLA), Crown Castle (CCI), Steel Dynamics (STLD)
●Thursday: Intuitive Surgical  (ISRG), Philip Morris (PM), AutoNation (AN), Freeport-McMoRan (FCX), American Airlines (AAL), Danaher (DHR), Dow (DOW), Union Pacific (UNP), Quest Diagnostics (DGX), AT&T (T), KeyCorp (KEY), Snap (SNAP)
●Friday: American Express (AXP), Schlumberger (SLB), Verizon (VZ), Kimberly-Clark (KMB), Cleveland-Cliffs (CLF), Newmont (NEM)

Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.

To get an idea of how the market has recalibrated so far this year, one need only look at the S&P 500’s most recent pullback.

At last Tuesday’s low, the SPX had fallen 5.4% since March 29. While that made it the second-smallest of the index’s four major downswings in 2022 (January 3–24, February 2–24, March 2–8, and March 29–April 12), it was bigger than all but one of the SPX’s downturns last year.²

And if the Cboe Volatility Index (VIX) is any indication, the market is adjusting to the new landscape. Last Tuesday the VIX, which typically rallies when the market sells off, closed at 24.26—lower than it did at the lowest points of the SPX’s smaller pullbacks in January, February, March, May, September, and November–December 2021.

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¹ Reuters.com. Putin says peace talks with Ukraine are at dead end, goads the West. 4/12/22.
² All figures reflect S&P 500 (SPX) daily prices, 12/31/20–4/12/22. Pullbacks were measured from the closing price of the relative high at the beginning of the move to the intraday low of the pullback’s lowest day. Supporting document available upon request.

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