US Close – Stocks extend losses on Kaplan Taper Chatter, US Data impresses,

Month end, rising concerns of pricing pressures, and some Fed taper chatter sent US stocks down from record highs.  

US Data

The personal income and spending data was all about the effects of the stimulus checks.  Personal income will obviously decline over the next couple of months, so that means we will have to wait until deep into the summer to get an accurate reading. 

The PCE Deflator was pushed higher on rising food and oil prices.   The Fed clearly signaled they are expecting inflation readings above 2.0%, so the market did not react much to today’s PCE Core deflator 1.8% rise from a year ago.  Inflation is picking up but it is still too early to make the argument if it is transitory. 

The Chicago PMI did not disappoint.  Similar to the other Fed regional surveys, the Chicago PMI surged to a 38-year high and helps the case for expecting an even hotter ISM Manufacturing reading next week. 

The University of Michigan’s consumer sentiment confirms the strength of the US consumer and rising inflation expectations.  The 1-year inflation expectation was revised lower from 3.7%, the highest level since March 2012, to 3.4%.  The slightly lower forecast shows some market inflationary fears may have become a bit excessive.  We will need to wait a couple more months before anyone can argue against the Fed’s belief that inflation will be transitory. 

Kaplan

Dallas Fed President Kaplan reminded investors how nervous this market can get over talking about tapering asset purchases.  He said, “We’re now at a point where I’m observing excesses and imbalances in financial markets.  I’m very attentive to that, and that’s why I do think at the earliest opportunity I think will be appropriate for us to start talking about adjusting those purchases.” 

Kaplan is not an FOMC voter until 2023, but hawkish stance could pave the way for some interesting dissents in the coming weeks.  Powell won’t budge anytime soon from his view that there has not been substantial progress in the labor market, but the debate will intensify.    

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