1. Moving the markets

Despite consumer prices accelerating at their fastest pace since mid-2008, with the Consumer Price Index (CPI) rising 5% YoY, you would not have known that by today’s market reaction. Apparently, the investment crowd has bought the theme spewed about by the Fed that inflation is or will be “transitory.”

The markets shrugged off any inflation concerns, and the S&P 500 promptly scored another intra-day record by touching the 4,249 level before pulling back into the close. All three major indexes, despite bobbing and weaving all day, recovered from an early dip, and closed in the green led by the Nasdaq with a +0.78% gain.

Today’s flip-flopping pattern included Small Caps, which eked out a gain after an early drop with VBK adding +0.57%, while the value based RPV slid again and gave back -0.87%, but YTD, the latter remains the king of the hill.

Interestingly, in light of the surging CPI number, bond yields slid with the 10-year down below the 1.5% level, at 1.45%, thereby touching its lowest point since March 14. The US Dollar Index pumped and dumped all day and ending the session lower.   

Needless to say, the CPI number gave an assist to Gold, which rallied a modest +0.30% but was not able to recapture its $1,900 level.

Added ZeroHedge:

Today’s big upside inflation surprise piles on the stagflationary evidence as production expectations remain too optimistic…

This chart makes this abundantly clear.

1. Moving the markets

An early upswing for the major indexes ran out of steam mid-morning with all three of them plunging into the red. This dip below the unchanged line did not last very long, and a slow but steady recovery pulled the indexes out of that early hole and back into green territory.

However, only the Nasdaq managed a noteworthy recovery of +0.31%, while the other two more or less ended up hugging their flat lines. Not much gained and not much lost sums up this session best, as the S&P continues to hover near its record close.

On the economic front, we learned that job openings in April rose to a new record high showing an amazing 9.3 million vacancies, as high numbers quit their jobs contributing to the supply-demand mismatch resulting from overly generous unemployment benefits.

Added ZeroHedge:

Separately, in yet another indication of the record surge in demand for labor since the collapse last April when there were 18.1 million more unemployed workers than there are job openings – the biggest gap on record – the gap has since shrunk dramatically to just 526K in April, down from 1.4 million in March. Yes: despite the covid shock, there are just half a million more unemployed people than there are job openings!

How this is going to end is anyone’s guess, but it is sad situation in this environment that firms are having a hard time filling open positions. On the other hand, what do you expect when people get paid more staying at home than going to work?

While the tech sector moved moderately higher, this day belonged to Small Caps with VBK adding a solid +1.17% thereby outperforming the rest of the space. Bond yields retreated with the 10-year closing at 1.54%, its lowest since March.

While that should have assisted Gold, it did not, as the US Dollar found some upward momentum and gained a moderate 0.18%.

Mused ZeroHedge:

Finally, we wonder just what will happen when all these couch-sitters actually run out of benefits? Record job openings… and near-record people soaking up government handouts rather than apply for a job.

1. Moving the markets

The Dow and S&P 500 lost their early upward impetus and slid most of the day besides not being able to pierce overhead resistance, despite hovering within striking distance of new all-time highs. For a change, the Nasdaq showed more strength and ended the session moderately to the upside.

Some analysts see the economic recovery as well-balanced, but only as long as signs of rising inflation are interpreted by the Fed to be “transitory.” I do not share that transitory viewpoint, because inflation potential, once unleashed to the degree it has, will not suddenly disappear on its own.

For today, however, the Biotech sector took top billing, while the broader market was treading water. The 10-year bond yield pumped and dumped and ended in proximity of where it started. The US Dollar index continued Friday’s slide, which allowed Gold to build on recent gains and break back above its $1,900 level, supported by a +0.56% gain.  

The big dog on deck will be Thursday’s CPI release, which DB’s Jim Reid explains as follows:

Consensus estimates for May currently expect both the headline and core rate to rise +0.4% month-on-month which would lift the YoY rate to 4.7% and 3.4% respectively, which will be the highest since late 2008 and 1993 which would be a pretty impressive feat especially on the core. This will undoubtedly be the most watched data release this year so far.

For sure, these are numbers that can’t be ignored forever and eventually will unearth a response from the Fed that may not be market friendly.