Resilient.
Robert R. Fragnito
Chief Operating Officer | Financial Advisor | Portfolio Manager at MCF Capital Management, LLC
U.S. stocks finished higher on Thursday as investors cheered strong economic data while sidelining a hot wholesale inflation report.???
Stocks traded primarily in positive territory on Thursday as a flurry of economic data and excitement over the initial public offering (IPO) of British semiconductor-design company Arm Holdings generated upbeat sentiment in equity markets.
Investors digested several economic data points impacting the future path of U.S. monetary policy. Wholesale inflation as measured by the Producer Price Index (PPI) rose 1.6% year-over-year (YoY) in August from 0.8% in July—economists were expecting a rise of 1.2%. The monthly pace (MoM) also surpassed expectations as the figure rose 0.7% from 0.4%.
The core reading, which excludes volatile food and energy prices, met expectations, showing a decline to 2.2% YoY and 0.2% MoM from the previous month's 2.4% YoY and 0.4% MoM.
Retail sales rose 0.6% in August, surpassing expectations of 0.2% and marking a fifth straight month of growth. Elsewhere, initial jobless claims revealed that the number of Americans who filed for unemployment benefits last week rose by 3,000 to 220,000, which was 5,000 less than forecasted.
The bond market had a rougher go on Thursday as U.S. Treasury yields initially slipped but then started advancing as the day progressed. The fed-sensitive 2-year yield ended up 2.7 bps at 5.011% and the closely followed 10-year yield rose 4.1 bps to finish up 4.289%.
In the energy complex, oil futures rose significantly. U.S. benchmark WTI crude advanced to settle on NYMEX up 1.9% to $90.16 per barrel. The international benchmark Brent crude settled up 1.8% to $93.57 per barrel on ICE Futures Europe. Both benchmarks had their highest close since November of 2022.
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Looking Ahead
It was a strong day on Wall Street, a little too strong if you ask us. Here’s a quick inventory of what we’ve learned today: The American consumer is resilient and continues to defy the odds. Headline wholesale (PPI) inflation spiked while core slowed. Meanwhile, energy prices are spiking, bond yields are readvancing, and the labor market is still strong.
While the data points towards inflation remaining quite “sticky,” expectations on the monetary policy front still favor that the Federal Reserve has ended its hiking cycle. On Thursday, both fed funds futures traders and equity markets believed that everything is just right for a “soft landing” and that the central bank’s work is done. The bond market on the other hand, was more cautious, not yet ready to jump to conclusions, but still concerned.
By our assessment, the future path of the Federal Reserve is being underestimated, and we would argue that the central bank is going to have to tread very carefully in upcoming meetings. While we cannot argue against the momentum we’ve witnessed in equity markets, the lack of a healthy correction draws some significant concerns for markets going forward.
Our conclusion is that we have prepared to move from being strategically defensive to neutral as we feel the current risk-reward environment warrants more caution in order to protect significant ground recovered year-to-date.????
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MCF Capital Management, LLC is an independent, family-run, financial advisory firm that manages investment portfolios for individuals and businesses through Quantitative Market Data Analysis.
THIS ARTICLE IS FOR INFORMATIONAL PURPOSES ONLY AND IS NOT INVESTMENT ADVICE.?
???SOURCES:?Refinitiv, Dow Jones NewsPlus, MarketWatch, Wall Street Journal, Barron’s, FinancialJuice, Investing .com, CNBC, Wells Fargo Investment Institute, TradingView