Stimulus expectations diminished following US data, no surprises from Fed minutes

Stocks are mostly lower after strong US economic data dampened the argument that the economy still needs massive stimulus and as rising inflation expectations start to weigh on valuations.  Technology stocks are leading the decline as pricing pressures will likely have the biggest impact on their bottom line.  The skyrocketing move in yields is triggering some investors to take off some of their most profitable frothy trades.  Even the Warren Buffett-led Berkshire Hathaway reduced their holdings in Apple.  The Oracle of Omaha also exited his stake with JPMorgan Chase and increased holdings in oil, pharmaceutical, and telecom stocks.

The steady rise into uncharted territory could end for US stocks if the 10-year Treasury surges beyond 1.45%.  Stocks won’t see relentless buying if yields continue to rise and that makes next week’s testimony by Fed Chair Powell the biggest risk event of the month.  The FOMC minutes delivered no surprises but offered some reasons to suggest the Fed is still on auto-pilot despite the current surge in yields.

Minutes

The Fed’s minutes for the January 26-27^th meeting delivered no surprises.  Temporary inflation is expected and will unlikely shift their policy in the short-term.  The pace of improvement in the labor market has slowed and that should remain the case until we see how virus mutations impact the reopening of the economy.  The Fed won’t change their purchases until substantial progress is made with their goals and that confirms the belief taper talk won’t happen for a while, possibly queuing up the Jackson Hole  Symposium at the end of summer as a key event.

Retail Sales soar in January

The streak of three consecutive months of declining sales during the 2020 holiday shopping season has been snapped.  The biggest economic release of the week was January Retail Sales rebound sharply 5.3%.  Despite job losses in January, stimulus payments kicked in and Americans shopped.  Shoppers spent on electronics and appliances.

Producer prices rose sharply even after you remove energy prices.  The headline producer prices reading for January printed at 1.3%, significantly higher than economists’ forecast of 0.4% and the prior 0.3% print.

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