Stocks Fell Following Hot Inflation Report…..
U.S. equities ended the day and week lower as the markets reacted to a Fed-favored gauge of inflation that came in hotter-than-expected. PCE and Core PCE Price Indexes rose more than anticipated, while personal income increased less than expected, and spending jumped. The moves came as equities have shown some volatility amid festering uncertainty regarding the ultimate economic impact of aggressive global central bank tightening as a result of persistent inflation. In other economic news, new home sales rose, and consumer sentiment was surprisingly revised the upside. Treasury yields were higher, and the U.S. dollar gained ground, while crude oil prices increased, and gold traded to the downside. Q4 earnings season rounded a corner this week with some second-tier results hitting the tape, as Autodesk disappointed with its guidance and Intuit bested expectations, while Warner Bros. Discovery fell well short of forecasts. In other equity news, shares of Boeing declined after the company paused delivery of its 787 Dreamliner planes. Asian stocks finished mixed, and markets in Europe fell, with economic data in the respective regions keeping the anxiety over future global monetary policy elevated.
The Dow Jones Industrial Average decreased 337 points (1.0%) to 32,817, the S&P 500 Index fell 42 points (1.1%) to 3,970, and the Nasdaq Composite went down 195 points (1.7%) to 11,395. In moderate volume, 3.8 billion shares of NYSE-listed stocks were traded, and 4.4 billion shares changed hands on the Nasdaq. WTI crude oil gained $0.93 to $76.32 per barrel. Elsewhere, the gold spot price declined $8.80 to $1,818.00 per ounce, and the Dollar Index rallied 0.6% to 105.23. Markets ended noticeably lower for the week, as the DJIA lost 3.0%, the S&P 500 went down 2.7%, and the Nasdaq Composite tumbled 3.3%.
Personal income rose 0.6% month-over-month (m/m) in January, below the Bloomberg consensus forecast of a 1.0% increase, while December’s figure was upwardly revised to a 0.3% rise. Personal spending increased 1.8%, ahead of the Street’s expectation for a 1.4% gain, and compared to the prior month’s positively adjusted 0.1% decrease. The January savings rate as a percentage of disposable income was 4.7%, up from December’s positively revised 3.4% rate.
The PCE Deflator rose 0.6% m/m, above expectations for a 0.5% rise, and compared to December’s upwardly adjusted 0.2% gain. Compared to last year, the deflator was 5.4% higher, compared to estimates of a 5.0% increase, and compared to the prior month’s upwardly adjusted 5.3% rise. Excluding food and energy, the PCE Core Price Index rose 0.6% m/m, higher than forecasts for a 0.4% gain, and compared to December’s upwardly adjusted 0.4% rise. The index was 4.7% higher y/y, compared to estimates of a 4.3% increase, and after December’s upwardly adjusted 4.6% rise.
New home sales jumped 7.2% m/m in January to an annual rate of 670,000 units, versus forecasts calling for a rate of 620,000 units, and compared to December’s upwardly revised 625,000-unit level. The median home price declined 0.7% y/y to $427,500. New home inventory fell to 7.9 months from December’s downwardly revised level of 8.7 months of supply at the current sales pace. Sales were lower m/m in the Northeast, Midwest, and West, but increased in the South, while sales in all four regions were down y/y. New home sales are based on contract signings, offering a timelier read on housing activity compared to the larger contributor of existing home sales, which are based on closings.
The final University of Michigan Consumer Sentiment Index for February was unexpectedly revised higher to 67.0, from the preliminary 66.4 figure, where it was expected to remain. The upward revision came as a modest downward adjustment to the current conditions portion of the index was more than offset by an upward revision to the expectation component of the survey. The 1-year inflation forecast was adjusted lower to 4.1% from the preliminary estimate of 4.2%, where it was expected to remain, and up from January’s 3.9% rate. The 5-10 year inflation forecast was unadjusted at January’s rate of 2.9%, matching estimates.
Treasury rates were higher, as the yield on the 2-year note rose 11 basis points (bps) to 4.80%, the yield on the 10-year note increased 7 bps to 3.95%, and the 30-year bond rate gained 6 bps to 3.94%.
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