Market futures continue to give love to equities ahead of the opening bell this morning, following a very affectionate Monday trading day that saw the S&P 500, Dow and Nasdaq all swell more than half a percentage point. All three indexes are now floating at historical highs, and the love affair looks to continue this morning.
On this Valentine’s Day, market participants appear to be infatuated with the notion that corporate tax cuts and deregulation will create big windfalls for corporate profits as well as individual coffers. This has sparked a new flame in the markets bidding up, although the hot Q4 earnings season has maintained its attractiveness, as well. And as the stock market generally is a forward indicator of about nine months or so, it’s looking as if all this love will manifest itself in real well-being toward the end of 2017.
Is anything throwing cold water on these developments? Perhaps. This morning’s Producer Price Index (PPI) numbers for January came out before the bell today, demonstrating greater-than-expected inflation at +0.6%. Subtracting the historically volatile food and energy costs, that figure goes to +0.4%. Year over year, this number is +1.6% on the headline, +1.2% minus food and energy. Meaning although near-term inflation looks to be heating up, we still appear to be at lukewarm levels on a trailing 12-month basis.
Most of this inflationary data has come from Energy costs, which shot up 4.7% last month. Transportation, Warehousing, Goods and Services all grew, as well. A clearer view of how much inflation has recently entered the market will come about tomorrow, when the Consumer Price Index (CPI) is released. We know the OPEC deal is resulting in lower oil and gas production since its late-November agreement, and the CPI will determine if consumers are feeling it at the pump yet.
Also, Fed Chair Janet Yellen testifies on Capitol Hill today, and if she feels inflation metrics are getting too hot and heavy, we may hear a more hawkish angle in her views about raising interest rates at the Fed meeting next month. Analysts love to parse “Fed-speak,” and although Ms. Yellen is generally more plainspoken than certain previous Fed Chairs like Alan Greenspan, nuanced rhetoric is definitely part of the game.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report