Stock rebound continues. After trading higher every day this week, the S&P 500 Index is now up more than 10% from its closing lows on Christmas Eve. While the index is close to what we would consider meaningful resistance in the 2600-2650 level, we have seen some positive signs of risk-seeking behavior including small cap leadership over the course of the rally, and outperformance from previous laggards such as energy and homebuilders. Going forward we want to see continued broad participation from stocks, notably a surge in the percentage of S&P components hitting one month highs, and a rebound in macroeconomic indicators such as industrial metal prices and corporate credit spreads.
Falling gas prices weigh on U.S. inflation. Consumer price inflation data out this morning was in line with consensus expectations but fell to +1.9% from last month’s 2.2% increase. A 7.5% drop in gasoline prices offset increases in food, shelter, and electricity services. Excluding more volatile components such as food and energy (Core CPI), inflation was up 2.2% year over year. Though not the Federal Reserve’s (Fed) preferred inflation measure, consumer prices have ticked lower recently, but growth rates remain in a healthy range that supports flexibility on the Fed’s part.
Time to Take Off The Blindfold? Investors seemed to have had blindfolds on over the past few months as they tried to hide from all of the bad news. Sometimes that may be a good approach, but there is eventually a time to remove the blindfold and look around. Today on the LPL Research blog, we’ll look at some of the recent positive signs investors may have missed if they had their eyes covered.
Weekly Market Drivers. Global equities are poised for another week of solid gains as investors’ optimism around trade negotiations between the U.S. and China that ended on Wednesday carried through the week. That optimism also helped push the dollar lower vs. major currencies, spurring gains in commodities like gold and oil, which rose for a tenth straight session yesterday. The increased appetite for risk assets lead to an upward shift in Treasury yields, though spread between 2-yr and 10-yr notes contracted a couple basis points. Look for more details on this week’s market drivers post on the LPL Research blog after today’s market close.
Monitoring the Week Ahead
- CPI Report (MoM, Dec)
- Monthly Budget Statement (Dec)
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