S&P500 Keeps on Trucking
Macro Perspectives
Total retail sales increased 3% month-over-month (vs. consensus expectation +1.7%) in January. Consumers are spending despite inflation pressures - every single sales category increased, led by a 7.2% surge in the most discretionary food services and drinking places categories.
All-time highs in truck driver employment reinforces the strong sales activity data.
The NAHB housing market index increased in the last report. Future sales expectations and traffic of prospective buyers were up - all regions showed advancement.
Optimism in the housing market is supported by all-time high construction employment.
The Atlanta Fed GDPNow model keeps climbing and is now showing a 2.5% increase in GDP for the first quarter (consensus is below 1%).
As one might expect given the stronger economic data, the Producer Price Index (PPI – another measure of inflation) was up 0.7% month-over-month in January versus expectations of 0.4%. Higher inflation data caused the S&P 500 to open down by more than1% on Thursday morning and the 10-year treasury to rise by 1.6% to 3.87% - the highest level this year.
On January 23, the S&P 500 index closed above 4000. Since then, it has never closed below this level even though the 10-year treasury rate has climbed from about 3.43% to 3.87%. This suggests that the mix of better economic growth versus the worry related to higher interest rates may be more weighted toward better growth than higher rates allowing for higher stock valuations.
Fundamentally, we will have to wait and see what happens with inflation as the economy keeps on trucking. For now, the stock market advance seems to be anticipating a goldilocks outcome.
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