Stocks began trading higher on Wednesday on another encouraging read on inflation.
However, key benchmarks failed to hold on to this early lead as dismal retail sales numbers mounted recession concerns and a Federal Reserve official supported more rate hikes.
Starting with the good news: The Labor Department (opens in new tab) said this morning that the producer price index – which measures how much suppliers charge companies for goods – was up 6.2% year-on-year in December. This was less than November’s 7.2% increase and was the lowest annual increase since March 2021. Core CPI, excluding volatile energy and food prices, rose 4.6%, a slower growth rate than in November. Month-over-month, overall PPI fell 0.5%, while core PPI rose 0.1%.
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Today’s PPI reflects what was seen in last week’s consumer price index: that inflation is indeed declining as a result of the Federal Reserve’s aggressive rate hike campaign. However, inflation is cooling because the Fed rate hikes slow down the economy. And this one was featured in today’s retail sales report. Specifically, the Department of Commerce said retail sales fell 1.1% from November to December, marking a second straight monthly decline.
And while today’s economic reports might lead investors to believe that the Fed could ease the size of future rate hikes, St. Louis Fed President James Bullard said earlier during a Wall Street Journal event (opens in new tab) that he expects the reference rate to be 5.25% to 5.5% by the end of 2023. This compares to the current rate of 4.25% to 4.5%, and is above market expectations that the reference rate will not exceed 5.0%, according to CME group (opens in new tab).
At the end, the Dow Jones Industrial Average fell 1.8% to 33,296, the S&P 500 was 1.6% lower at 3,928, and the Nasdaq composite was 1.2% lower at 10,957.
The best commodity ETFs to buy
Today’s inflation update “represents another data point supporting the likelihood that producer prices peaked at 11.7% last March and are on their way down,” said Greg Bassuk, CEO of asset manager AXS Investments. “This is very good news for both Wall Street and Main Street, also because trends in producer prices tend to trickle down to consumers.”
Still, inflation remains well above the Fed’s 2% target, and “investors would be wise to remain invested in inflation-sensitive assets,” Bassuk added. These assets include those found in cyclical sectors such as energy supplies and finance. They also include commodities, which have historically proved resilient to rising prices. While the idea of dealing directly with commodity markets may be intimidating to some, best commodities ETFs offer investors an easy way to gain exposure to the various asset classes.