U.S. stocks closed sharply lower on Monday, with the S&P 500 entering a bear market and Dow industrials tumbling almost 900 points, as financial markets continued to reel from a surprise acceleration in inflation just days ahead of a Federal Reserve interest-rate decision.
The Dow Jones Industrial Average DJIA, -2.79% finished down 876.05 points, or 2.8%, at 30,516.74, after dropping as much as 1,019.07 points at its session low.
The S&P 500 SPX, -3.88% ended 151.23 points lower, or 3.9%, at 3,749.63. The S&P 500’s close below 3,837.25 marks a more than 20% pullback from the index’s Jan. 3 record close, confirming a bear market for the large-cap benchmark.
The Nasdaq Composite COMP, -4.68% dropped 530.80 points, or 4.7%, to 10,809.23.
Stocks sold off sharply Monday on climbing volatility, as hot inflation data rattled markets ahead of the Federal Reserve’s mid-week policy decision. Friday’s data that showed the consumer-price index shooting to a fresh 40-year high of 8.6% year-over-year has caused investors to reassess how high the Fed will go in raising interest rates. “The inflation data on Friday was clearly a game-changer and the market is reacting accordingly,” said Daniel Tenengauzer, head of markets strategy and insights for BNY Mellon. “Bond yields are higher and, as a result, equities are down because the Fed will need to react.” Economists at Barclays and Jefferies, Tenengauzer said in a phone interview that he expects policy makers to lift the fed funds rate by 75 basis points on Wednesday. “Inflation has clearly come unanchored and officials need to build a new narrative,” given their median forecasts in March for the long-term fed funds rate to be at 2.4% and the 2022 year-end level to be at 1.9%, he said. The Fed’s main policy rate target currently sits between 0.75% and 1%. “There’s definitely sentiment in the market that the Fed’s credibility is also being de-anchored as we speak,” Tenengauzer said via phone. The dollar also jumped, with the ICE U.S. dollar index DXY, 1.05%, which measures the currency against a basket of six major rivals, jumping 1% to trade near an almost 20-year high. Concerns about monetary policy tightening aren’t limited to the U.S. Last week, the European Central Bank suggested it could follow up a quarter-point rate hike in July with a 50-basis point move in September, as the Bank of England also readies another expected rate hike this week. NN: THe market still has more work to the downside. This trade could be one of the good ones or a unmitigated disaster. Timing is everything. We need to trade to the downside and get pretty close to a bottom. Then take profits on our shorts and ride the upside to liquidate our longs……..
US inflation accelerated to a fresh 40-year high in May, a sign that price pressures are becoming entrenched in the economy. That will likely push the Federal Reserve to extend an aggressive series of interest-rate hikes and adds to political problems for the White House and Democrats.
NB: Observe in the above chart hpw the core rate, the more imprtant indicator, has already peeked. The consumer price index increased 8.6% from a year earlier in a broad-based advance, Labor Department data showed Friday. The widely followed inflation gauge rose 1% from a month earlier, topping all estimates. Shelter, food and gas were the largest contributors. The so-called core CPI, which strips out the more volatile food and energy components, rose 0.6% from the prior month and 6% from a year ago. The figures dash any hope that inflation had already peaked and was starting to ebb. Record gasoline prices, paired with unrelenting food and shelter costs, are adding strain to Americans’ cost of living, suggesting the Fed will have to pump the brakes on the economy even harder. That raises the risk of a recession, which some economists already saw as likely next year. “There’s little respite from four-decade high inflation until energy and food costs simmer down and excess demand pressures abate in response to tighter monetary policy,” Sal Guatieri, senior economist at BMO Capital Markets, said in a note. “The Fed might still raise policy rates ‘just’ 50 bps next week, but it could easily ratchet up the pace beyond then if inflation keeps surprising to the high side.” Two-year Treasury yields jumped, stocks opened lower and the dollar rose. Traders fully priced in 50-basis-point rate hikes over the Fed’s next three policy meetings in June, July and September. In May, prices for necessities continued to rise at double-digit paces. Energy prices climbed 34.6% from a year earlier, the most since 2005, including a nearly 49% jump in gasoline costs. Gas prices so far in June have climbed to new highs, signaling more upward pressure in coming CPI reports and therefore keeping the Fed in the hot seat. “With the next CPI report likely tracking at about the same monthly pace, the chance for a new peak in year-over-year inflation is high. That will likely keep the Fed on a trajectory of 50-basis-point hikes beyond July, even though the economy is cooling.” Grocery prices rose 11.9% annually, the most since 1979, while electricity increased 12%, the most since August 2006. Rent of primary of residence climbed 5.2% from a year earlier, the most since 1987. There are growing risks that price pressures in those categories will continue to build. Russia’s ongoing war in Ukraine, as well as stepped-up related sanctions; potential port disruption due to the upcoming West Coast dockworker contract expiration; Covid-related lockdowns in China and drought and could all contribute to higher prices for food and energy. “Tighter monetary policy will not help much with surging global commodity prices or structural changes in the way people spend and live in the post-pandemic economy,” Wells Fargo & Co. economists Sarah House and Michael Pugliese said in a note. That likely spells further trouble for President Joe Biden, whose approval ratings have sunk to new lows ahead of midterm elections later this year. While the job market remains a bright spot, decades-high inflation is crippling confidence among the American people and largely outpacing wage gains.
Inflation-adjusted average hourly earnings fell 3% in May from a year earlier, the biggest drop since April 2021 and the 14th straight decline, separate data showed Friday. NB: so much for wage push inflation. Another sign that the inflation fire storm is burning itself out.
That’s killing consumer sentiment, which plunged in early June to the lowest on record, and inflation expectations moved higher, according to data from the University of Michigan released after the CPI. Furniture, including bedding, was one of the few categories to post a monthly decline. Prices for goods such as apparel, meanwhile, continued to climb, contributing to the stronger-than-forecast core figures. Before the report, economists had already revised up their estimates for year-over-year inflation through the third quarter of 2023, according to the latest Bloomberg survey. Airfares rose 12.6% in May, a slight moderation from the prior month but still up the most on an annual basis since 1980. Prices for hotel stays, meanwhile, were up 22.2% year-over-year. Rising demand for travel and entertainment this summer, particularly among wealthier households who have the savings to support discretionary spending, as well as tight labor market conditions will likely maintain upward pressure on services inflation in the coming months. So far, consumer spending has held firm in the face of inflation, supported by savings and credit cards. Some economists fear that the Fed will go too far in tightening policy, risking weaker spending. Shelter costs — which are the biggest services’ component and make up about a third of the overall CPI index — rose 0.6% from April, the most since 2004, and 5.5% from last year, the most since 1991. Economists don’t expect housing inflation to peak until later this year, suggesting further increases in these categories. Used car prices, which had been cooling in recent months, advanced 1.8% in May, the most this year. New-vehicle prices climbed 1%. NN: I expec ta velocity breakdown to new lows as panic sets in the stock market. I am hoping for a panic. If i can seance the bottom i plan to tack profits on our shorts and add to the long side of the trade. I expect a significant bounce. I am not declaration a end to the bear market. But i do see key reversal to the upside coming. This is nothing more then guessing…….. I am sure we will lose our ass asexpected.
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The Labor Department’s latest summary of the Consumer Price Index, released on Friday, shows that price increases accelerated again during May, with the “all items index” increasing 8.6% from one year ago, and a 1% increase month-over-month. That follows a one-month reprieve in April, when the CPI numbers were up 8.3%, giving some people hope that inflation had peaked. NB: Look carefully at the chart of the 12 month percentage change below. That little hook at the end could be worth millions to us. It is my belief inflation has peeked.. And its not just the chart
The 8.6% increase is the highest since 1981, and was higher than expected. The “core CPI,” which excludes food and energy prices, increased 6%, which was also more than expected, and many of the broader price increases were due to the continuous upward march of food, gas, and shelter costs. Shelter costs, for instance, are up 5.5% year-over-year, gasoline costs (of all types) are up 48.7% year-over-year, and food prices increased 10.1% since last May—and were up 1.2% since April. Other notable price increases from the latest CPI Index include an increase of 12.6% for airline fares, and a 2.9% increase in dairy products year-over-year.
Most of what the FED measures in terms of inflation are survey-based, observable inflation measures. The bond market presents an alternative gauges of inflation in what are known as market-based inflation measures. Real rates are a better approximation for financial conditions, and they allow for easier historical comparisons across time periods
Look at the chart above. It shows inflation starting to peek at the begining of the month. The numbers have donw nothing but improve since then. This is a reliable to use the bond markets as a inflation indicator. As you can see rated that were negative have now turned positive. And if we add the fact that after this chart was generated the 10 year yield soared above 3%. We can look directly at the US Treasury for nominal interest rates, ten year US Treasury filtered for inflation. Provide us a “insiders” view into how economic expectations are filtering through into bond markets. This chart is at the end of May. As we speak the 30 year long bond is trading over 3.25 %. As you can see interest rates are already pricing in the 3 or 4 more FED coming 50 bases point increases. The market and the FED always get it wrong inflation is peeking. This is further indicated by by the supply chain tracker chart below. Please note they will over tighten….. This is not your typical inflation inflation. That is why the algoes AI assholes and doctoral pompous pricks and the clueless FED are having so much trouble figuring it out. The Russian invasion and stupid sanctions on Russian oil and gas created artificial shortages….. Easy to back away from. Supply chain disruptions caused prices to soar. And now the supply chains is OVERSUPPLYED. Want proof just go to the big box stores and see the deflationary in nature massive discounts.
Today’s inflation — which is running at the fastest pace since 1982 — boils down to a simple supply chain mismatch. Economic reopening saw Americans rush back to their normal spending habits armed with pent-up demand and stimulus dollars. But while shoppers’ demand rebounded almost immediately, companies were caught somewhat flat-footed. Product shortages quickly emerged and the imbalance between supply and demand contributed to historically elevated inflation. The supply side of the equation now seems to be steadily healing. Various indicators of supply-chain strain eased further in May after seemingly peaking in March, according to a new index created by Oxford Economics.See chart below. Logistics stress is now the lowest its been since the start of the year, and the trend suggests improvement is accelerating as the broader economy nears a full recovery. Lower stress means more supplies and in fact distribution channels are becoming over supply. Supply above demand means prices will now come down. It will take a few months for the traditional gauges to pick this up.
Oxford Economics
The number of cargo ships waiting to unload in the ports of Los Angeles and Long Beach, California fell for a fourth straight month in May. Inventories rose, helping close the supply-demand gap as Americans’ spending held strong. Prices for goods and services continued to climb, but at a slower pace than the month prior. The Freights Baltic Index, which tracks rates for 40-foot shipping containers, fell to $7,370 for the week that ended June 3. That’s the lowest reading since July 2021 and down from the September high of $11,100. Another driver of inflation that is abating. See chart below
The steady decline in shipping rates offers an even rosier picture of the supply chain’s recovery. The latest declines are among the largest since rates peaked in the fall of 2022. Lower shipping rates help ease inflationary pressures throughout the economy, as elevated prices in the logistics sector lead to higher input costs for all kinds of manufacturers and services. In conclusion: I expect downward pressure on the stock market to continue. I am looking for a further velocity breakdown to the down side. It could come any time as the market believes inflation will run out of control and throw in the towel. This is close most all analysts are extremely negative.That is a wrong assessment. Inflation is peeking and soon will be seen the the CPI and PPI topping. These are lagging indicators. When we see capitulation we will buy back our shorts and add to the long side looking for a relief rally. If we get it right we will sell out long positions. Its going to be a rough and dangerous ride. And i can be full of shit and we we will lose our collective asses…..
NEW YORK, June 10 (Reuters) – The dollar climbed to a near four-week high against a basket of currencies on Friday, after data showed U.S. consumer prices accelerated in May, strengthening expectations the Federal Reserve may have to continue with interest rate hikes through September to combat inflation. In the 12 months through May, the CPI increased 8.6% after rising 8.3% in April. Economists had hoped that the annual CPI rate peaked in April. The inflation report was published ahead of an anticipated second 50 basis points rate hike from the Fed next Wednesday. The U.S. central bank is expected to raise its policy interest rate by an additional half a percentage point in July. It has hiked the overnight rate by 75 basis points since March. “Inflation is now at a 40-year high with little evidence that it has peaked,” said John Doyle, vice president of dealing and trading at Monex USA. “Stocks are extending losses on the expectation the Fed could find the scope to speed up rate hikes. The greenback is gaining on policy divergence and risk-off trading,” Doyle said. The U.S. Dollar Currency Index , which tracks the greenback against six other major currencies, was 0.8% higher at 104.16, its highest since May 17, and within sight of 105.01, the two-decade high touched in mid-May. For the week, the index was up nearly 2%, its best weekly performance in 6 weeks. The dollar was up 0.79% against the Swiss franc at 0.9881 francs after the U.S. Treasury Department on Friday said Switzerland continued to exceed its thresholds for possible currency manipulation under a 2015 U.S. trade law, but refrained from branding it a currency manipulator. With the U.S. inflation data knocking investors’ risk appetite, the risk-sensitive Australian dollar reversed direction to trade down 0.58% on the day. Sterling fell 1.5% to $1.2315 and was set for a second consecutive week of declines as Britain’s gloomy economic outlook left investors on edge. NN: We bought more Pounds and Euro’s on Fridays close. The US is seeing higher inflation and the Fed is moving faster at raising rates then the EU or England. We believe Pounds and Euro’s at these levels are a great bargain. I am prepared to look stupid on this trade for a year. By that time oil disruptions will ease (prices will peek) as the world will stop pounding its dick in the sand. They will find some excuse to left sanctions on Russia and the Ukraine will resort back to its historic servitude to the Kremlin. Supply lines will be restored and demand destruction and central banks interest rates will catch up with inflation. And that means these currency valuations visa vi the dollar will return to historic levels.
Major stock markets in the United States plunged at the closing session on Friday, ending the week’s trading in the red territory after recording steep losses throughout the session. Inflation in the US has reached a four-decade record-high, while the report on the consumer sentiment index revealed a decrease of 41.3% year-over-year. Meanwhile, the country’s fiscal deficit was reduced to $66 billion in May. The Federal Reserve will unveil its decision on further interest rate hikes in the coming week, with a 75 basis point increase possible. The Dow Jones Industrial Average closed the trading session, sinking 2.73% or 881 points. Dow Inc. pulled the index down nosediving 6.06%. The Nasdaq 100 decreased by 3.56% or 436 points with Docu Sign Inc. as its worst performer losing 24.53%. The S&P 500 plummeted by 2.91% at the closing bell, with Caesars Entertainment tumbling 9.29%.
Consumer Sentiment Index in the United States decreased 14% on a monthly basis to 50.2 points in June, landing at a record low, according to a preliminary report published by the University of Michigan on Friday. The index plummeted 41.3% year-over-year. The Current Economic Conditions Index fell by 12.5% month-on-month and nosedived 37.5% compared to June 2021. Meanwhile, the Index of Consumer Expectations was down 15.2% from the previous month and dropped 44% on an annual basis. “Forty-six percent of consumers attributed their negative views to inflation, up from 38% in May; this share has only been exceeded once since 1981, during the Great Recession. Overall, gasoline prices weighed heavily on consumers, which was no surprise given the 65 cent increase in national gas prices from last month (AAA),” Surveys of Consumers Chief Economist Richard Curtin wrote in the report. NN: more doo due
U.S. stock-index futures extended a fall Friday after an eagerly awaited inflation reading came in much hotter than expected, indicating the Federal Reserve will need to keep pressing hard on the brakes to get surging price pressures under control.
S&P 500 futures ES00, -1.65% fell 1.5% to 3,957.
Dow Jones Industrial Average futures YM00, -1.45% dropped 409 points, or 1.3%, to 31,827.
Nasdaq-100 futures ES00, -1.65% were down 1.7% at 12.096.75. All three indexes booked their worst daily percentage drops since May 18, according to FactSet data.
The May consumer price index showed a monthly rise of 1%, The year-over-year rate rose 8.6%, topping the 40-year high of 8.5% seen in March.
The so-called core rate of inflation, which omits food and energy, rose by 0.6%, a tick higher than expected. The increase in the core rate over the past year slowed to 6% from 6.2%. The Fed views the core rate as a more accurate measure of price trends, but surging food and gasoline costs are fueling a public and political outcry over inflation. U.S. stocks tracked European equities lower earlier on Thursday after the European Central Bank announced that its first interest-rate hike in more than a decade will take place next month, with another likely in September, in a bid to get surging inflation under control. The central bank also said it would halt its asset buying program next month. European stocks resumed declines on Friday, with the Stoxx Europe 600 index SXXP, -1.95% down 1.8%. The U.S. inflation data comes as a Federal Reserve policy meeting looms for next week. The Bank of England, the Swiss National Bank and the Bank of Japan will also holding meetings next week. NN: The economy is in deep doo due
Wall Street is looking for a sign, any sign, that U.S. inflation is coming off a rapid boil. But they are unlikely to find much cooling off in May’s report on consumer prices. The consumer price index is expected to show a large 0.7% increase when the report is released Friday morning — more than double the gain in the prior month. And the number could be even higher after another spike in the cost of gasoline as well as steadily rising rents and food prices. The increase inflation over the past year, meanwhile, is forecast to stay near a 40-year high of 8.4%. In April, the yearly rate fell for the first time in eight months to 8.3%. The prior 8.5% reading in March was the biggest since December of 1981. The big worry on Wall Street DJIA, -1.94% SPX, -2.38% is that inflation is shifting to services from goods. That’s because rising prices in services — think rent, hotel rates and plane tickets — tend to be harder to reverse and are often a sign inflation is becoming embedded in the economy. Until very recently, most of the inflation in the U.S. was concentrated in goods such as new and used vehicles, gasoline, food and other consumer goods. Goods inflation has been driven by a combination of high demand and ongoing shortages of key materials such as computer chips in the wake of the pandemic. While the supply shortages appear to be starting to ease, the higher cost of gas, grains and other crucial materials has added to the cost of services. Restaurants are paying higher prices for foodstuffs, for example, and home builders are still hampered by high costs of supplies and labor. Last month, services accounted for about 40% of inflation —and the number is rising. The yearly rate of service inflation has almost doubled to 4.9% in April from last summer. “Recently the drivers of inflation have been evolving towards services,” said U.S. economist Alex Pelle of Mizuho Securities. By far the biggest contributor to service inflation has been escalating rents and home prices. Shelter is the single biggest component of the consumer price index, making up one-third of the overall price gauge. Rents have climbed 4.8% in the past year — the fastest gain since 1987. Owing to higher rents, the so-called core rate of inflation is forecast to rise a sharp 0.5% in May. That would put the yearly rate at a steep 5.9% vs. 6.2% in March. The core rate omits food and energy and is seen as a more reliable predictor of future inflation trends. Food and gas price often undergo large swings and seldom remain high for more than a few years at a time. The Federal Reserve, the nation’s inflation guardian, can’t ignore higher food and gas prices, however. They are household staples and are generating much of the public and political outcry about high inflation. The central bank is on track to raise interest rates sharply over the next year and eventually that should slow the economy enough to start to corral inflation. The 30-year fixed mortgage rate, for example, has doubled to nearly 5.5% from 2.7.5% last fall. Higher rates should dampen demand for housing and partly rein in housing costs, but it won’t happen overnight. What does that mean for the Fed? The central bank is going to have to keep raising interest rates rapidly to show it means business — or risk higher inflation in the long run. “Any thought of a ‘pause’ in Fed rate hikes in September, as Atlanta Fed President [Raphael] Bostic mused about, seems highly improbable,” said Stephen Stanley, chief economist at Amherst Pierpont Securities. NN: This is one of these deals where i may be outsmarting myself….. My sniff is today’s much anticipated CPI report will show “transitory” inflation is indeed embedded and growing like metastasized skin cancer in a sun tanning pallor. AND is i can guess lucky it will drive the stock market down. I expect a est of the lows and then a dead cat bounce. Honestly that is a lot of complicated things to get right to make money in this trade.
Major stock markets in the United States closed lower on Thursday, following the latest European Central Bank’s monetary policy statement. In addition, International Monetary Fund revealed they may cut down the global growth forecast for the third time this year. Furthermore, the figures of the initial jobless claim report in the United States increased by 27,000 to 229,000 in the week ending June 4. The Dow Jones Industrial Average index closed with a 1.94% or a 639-point loss, with the Boeing Company being its worst performer at 4.23%. Nasdaq 100 decreased 2.74% and the S&P 500 was 2.38% lower at the end of trading, both pulled down by Moderna Inc’s 9.76% loss. Rate-sensitive growth stocks are under pressure as the benchmark U.S. 10-year Treasury yield climbed to as much as 3.07%, its highest level since May 11. Inflation worries came to the fore ahead of the U.S. consumer price index (CPI) report on Friday as Brent crude prices rose above $123 a barrel. “There is a straight line read from higher prices at the pump for the U.S. consumer to higher U.S. inflation,” said Huw Roberts, head of analytics at Quant Insight.
10-Year Treasury yield up at 3.04%; Brent above $123 a barrel
Tesla gains on surge in China sales, UBS upgrade
Indexes down: Dow 0.52%, S&P 0.64%, Nasdaq 0.75%
“The hope was that Friday’s CPI report would be ammunition for the peak inflation argument and the crude oil move is upsetting that.” Consumer prices are expected to have risen 0.7% in May, while the core consumer price index, which excludes the volatile food and energy sectors, rose 0.5% in the month. Investors fear a hot reading on inflation could keep the U.S. Federal Reserve on its path to raise interest rates aggressively against the backdrop of a volatile stock market, strong consumer spending and tight labor conditions. “Right now, we are at the confluence of four headwinds – a slowdown in economic growth rate in the United States, Fed tightening monetary policy, a rise in interest rates and a red hot inflation,” said David Sekera, chief U.S. market strategist, at Morningstar. NN: Tomorrows CPI report has become larger then life. I have a strategy to complicated for individuals. I do not want to tip me hand… That is why the 2 weeks of silence. After the report all will be revealed to you.
