Stocks started Wednesday trading higher thanks to another encouraging inflation reading.
However, the main benchmarks could not maintain this early lead as poor retail sales data emerged. eCONOMY The concerns and a Federal Reserve official gave support behind further interest rate hikes.
Start with the good news: The Department of Labor (Opens in a new tab) This morning it said its producer price index – which measures how much suppliers charge businesses for goods – rose 6.2% year-on-year in December. This was down from a 7.2% increase in November and was the lowest annual increase since March 2021. Core CPI, which excludes volatile energy and food prices, rose 4.6%, a more slower pace of growth than seen in November. Month-over-month, headline PPI fell 0.5%, while core PPI rose 0.1%.
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The PPI is now echoing what the consumer price index saw last week – that is inflation is actually decreasing as a result of the Federal Reserve’s aggressive interest-rate hiking campaign. However, inflation is cooling because Fed rate hike slows down the economy. and it seen in today’s retail sales report. Specifically, the Commerce Department said retail sales fell 1.1% from November to December, marking the second consecutive monthly decline.
And while current economic reports may have led investors to believe that the Fed may moderate the size of future rate hikes, St. Louis Fed President James Bullard said earlier a Wall Street Journal event (Opens in a new tab) that he expects the benchmark rate to reach 5.25% to 5.5% by the end of 2023. This compares to the current rate of 4.25% to 4.5%, and is above market expectations for the benchmark rate to reach no more of 5.0%, according to the CME group (Opens in a new tab).
In conclusion, the Dow Jones Industrial Average decreased 1.8% to 33,296, the S&P 500 fell by 1.6% to 3,928, and the Nasdaq Composite was 1.2% lower than 10,957.
The Best Commodity ETFs to Buy
Today’s inflation update “represents another data point that supports the possibility that producer prices have risen from their peak last March of 11.7%, and are now on the bottom,” said Greg Bassuk, CEO of asset management firm AXS Investments. “This is very good news for Wall Street and Main Street, in part because trends in producer prices often trickle down to consumers.”
However, inflation remains above the Fed’s 2% target, and “investors will be cautious to remain invested in inflation-sensitive assets,” Bassuk added. These assets include those found in cyclical sectors, such as energy stocks and financial. This also includes commodities, which have historically proven resilient amid rising prices. While the idea of dealing directly with the commodity markets may be intimidating to some, the best ETF products allow investors an easy way to gain exposure to different asset classes.