[Chart courtesy of MarketWatch.com]

1. Moving the markets

Following yesterday’s eye-popping Producer Price report, it came as no surprise to me that today’s soaring CPI release confirmed what I have been pouncing on all year, namely that inflation is here is to say and likely will get worse.

US Consumer prices soared at their fastest rate in 40 years, as ZH reported, by increasing 6.2% YoY in October, thereby blowing by expectations of 5.9% YoY and accelerating from September’s 5.4% YoY. The Core CPI spiked to its highest since August 1991, which confirms another non-transitory surge in inflation.

Added ZeroHedge:

Real weekly earnings are down 1.6% YoY.

The gap between PPI and CPI continues to run at record highs, meaning either consumers are about to be crushed or margins are going to collapse.

As a result, the markets retreated from their lofty levels, assisted by a spike in bond yields, with the 10-year exploding almost 12 basis points higher to end the session at 1.563%. Traders dumped the high-flying tech sector and rotated into bank stocks and gold, the latter of which closed at 5-month highs.

The precious metal surged and gained 1.27% on the day and is now moving towards the $1,900 level, while the US Dollar rallied almost 1%. It was crunch time on Wall Street, as neither spiking bond yields nor a rising dollar were able to prevent gold from levitating.   

The “clueless comment of the day” award goes to MSNBC, who lectures us as to why the inflation we are seeing is a good thing, as this picture tries to explain.

Go figure…

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The eagerly expected print of the current Producer Price Index (PPI) clearly showed the error of assuming that inflation will be transitory. For a change, analysts had forecast an eye popping 8.6% YoY rise in producer prices, and they nailed that number, which represents a new record high for YoY increases.

MoM, the expectation was 0.6%, which proved to be accurate as well, with ZeroHedge adding these details:

One-third of the October advance in the index for final demand goods can be traced to prices.

Over 80 percent of the October increase in prices for final demand services can be traced to margins for automobiles and automobile parts retailing, which rose 8.9 percent.

The gap between PPI and CPI continues to run at record highs, meaning either consumers are about to be crushed or margins are going to collapse.

With this record PPI print you would have expected bond yields to spike, but the opposite occurred with entire yield curve tumbling, as the 30-year got pushed down to levels last seen in July. Huh?

The major indexes only closed moderately in the red thanks to the usual last hour lift-a-thon, which prevented a worse outcome. Nevertheless, the S&P 500’s 8-day winning streak came to an end, in part induced by profit taking.

Tesla was in the news today, but with a negative slant, as the stock got slammed some 12% for no apparent reason other than rumors that Elon Musk may need to sell some of his personal holdings.

Even the “most shorted stocks,” which are usually manhandled to support the bullish meme and cause short sellers to cover, headed south and then got stuck in a sideways pattern thereby not affecting market direction.

The US Dollar wandered aimlessly and essentially closed unchanged, but Gold managed to keep its recent upward trajectory intact by gaining 0.34% and solidifying its position above the $1,800 level.   

With the earnings season coming to an end, new catalysts are needed to keep this market from slipping. I envision these to be solid economic data points and more re-openings, but given the current overall economic and political landscape, this may be just wishful thinking on my part.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

After Friday’s mid-day dump, which was followed by a pump into the close, the markets registered their best week in over 6 months not for equities but also for bonds and gold. This meme dominated today’s trading environment and was supported by Congress having passed the $ 1 trillion infrastructure spending package.

While the details are sketchy and preliminary analysis showing the amount of pork being part of it, traders saw it as a positive and pushed the major indexes to another green close, during which the Dow touched a new intraday high, while the Nasdaq and S&P 500 set new records.

Friday’s emotional high, caused by a better-than-expected jobs report showing that 531k jobs were added last month, still created a warm and fuzzy feeling for the bullish crowd to keep the momentum going.

On deck this week are the critical readings of the Producer and Consumer price indexes, both of which will likely confirm that inflation is here to stay and not “transitory,” as the Fed wants you to believe.

The US Dollar continued its downswing from Friday and lost 0.31% in the process. That helped Gold to resume its turnaround with the precious metal gaining 0.51% and solidifying its position above its $1,800 level. That was a solid rebound, especially in the face of rising bond yields, with the 10-year jumping back to the 1.5% level.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

It was another wild ride in the markets with the Dow spending the session in the red yet closing just about unchanged. The S&P 500 and Nasdaq never dropped below their respective unchanged lines and continued their record run with the latter showing more bullish momentum than the former.

The S&P produced its sixth straight win in a row, because of traders having come to terms with the Fed’s taper program, which was taken as a sign of a growing economy that should be able to handle an unwinding of the pandemic stimulus. There was also some relief that this long anticipated move by the Fed had finally become reality and did not produce a surprise.  

Regarding data, we learned that US jobless claims totaled 269k for the week, which was not only better than the expected 275k but also amounted to the lowest pandemic-era total. On deck tomorrow is the much-anticipated jobs report with consensus estimates calling for 450k new jobs added.

The most shorted stocks did what they are supposed to do, namely head south, which was accomplished today. SmallCaps pumped and dumped but managed to close unchanged. Bond yields gave back most of yesterday’s advances with the 30-year slipping back below the 2% level.

The US Dollar, after tanking yesterday, found some footing and rallied back, in the process gaining 0.49%. Gold seemed to disregard the dollar’s strength and benefited from lower bond yields by rebounding a solid 1.67%, but it was not quite enough to conquer its $1,800 level.

Despite the wild ride, bullish momentum was maintained, which could see even more upside, unless tomorrow’s jobs report turns out to be bad news.

As I mentioned yesterday, I will be out of town tomorrow, so my next market commentary will be posted this coming Monday.

[Chart courtesy of MarketWatch.com]

1. Moving the markets

The eagerly awaited Fed announcement came and went and contained no surprises. As anticipated, the pandemic bond buying program of $120 billion/month is scheduled to be reduced by $15 billion starting 11/21 presumably due to the economy being strong enough to handle it.

The Fed then gave the bulls the ultimate assist by reiterating that it was in no rush to raise interest rates after finishing the tapering process by the middle of next year. The kicker came with these words:

Inflation is elevated, largely reflecting factors that are expected to be transitory.

Supply and demand imbalances related to the pandemic and the reopening of the economy have contributed to sizable price increases in some sectors.

There you have it. The inflation scenario is still considered to be transitory, a statement that I believe will be proven dead wrong at some point in the future. However, at this moment in time, the markets were pleased and continued their ramp-a-thon into the close.

MarketWatch summed it up this way:

The Dow Jones Industrial Average rose 104 points, after being down more than 160 points earlier in the session and closed at a new record. The S&P 500 traded up 0.65% to a new all-time high. The Nasdaq Composite added 1% and closed at a record. This is the fourth session in a row that all three major averages closed at new highs.

The Russell 2000 rose 1.8% and notched a record close. The small-cap benchmark is up 4.7% this week.

While equities reacted positively, helped by the continued short squeeze, the US Dollar took a dive after a mid-session run up, bond yields spiked with the 30-year piercing the 2% level. Gold rode the roller coaster but ended the session lower despite a last hour rebound attempt.

The fear and greed index shot up a couple of notches from yesterday’s reading.  

I will be posting the week-ending commentary tomorrow, Thursday, since I will be out of town on Friday.