In contrast to yesterday’s CPI print, PPI came in below estimates at 0.2% headline and core. Futures erased their sharp overnight losses which saw them nail our next downside target and now point to modest gains.
A bounce here would be more convincing if SPX were to also reach its 50-day moving average.
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March CPI came in at 0.4% MoM for both headline and core (versus 0.3% expectations for both), hotter than expected for the second month in a row. YoY headline registered at 3.5% versus expectations of 3.4% and 3.2% in February and core came in at 3.8% (unchanged from February) versus expectations of 3.7%.
As we expected, inflation continues to be buttressed by strong YoY energy, shelter and services prices. Our gas vs inflation model remains on track.
Futures came within a few points of our next downside target on the print.
And, algos are finally recognizing that a string of 0.4% monthly prints can turn into an annual print much closer to 5% than 2%.
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Futures are up modestly as traders look ahead to this week’s important data dumps: FOMC minutes and CPI on Wednesday, initial claims and PPI on Thursday, and Friday’s U of Michigan consumer sentiment.
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NFP came in at 303K vs 200K estimates, a huge beat which, combined with a decline in the unemployment rate, argues against any near term rate cuts.
ES is all over the map this morning, but has given up much of its overnight ramp and is approaching our next downside target. With CPI coming out next week and a likely military escalation in the Middle East, ES will do well to hold its 50-day moving average.
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We’ve seen this movie before. For years, the yen carry trade has been a critical element of the equity price support toolbox. But, all good things must come to an end. When the yen gets too cheap, Japanese inflation becomes problematic as the cost of importing food and energy soars.
Aside from exposing the ludicrousness of its monetary policy, Japan’s recently unveiled 0.0-0.1% interest rate regime speaks volumes to the pressures of trying to balance economic reality with the desire for ever higher stock prices.
Slamming the yen’s value works fine – to a point. But, as rising food and energy costs pressure the real economy, something has to give.
Enter the euro.
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Many bears have simply given up betting on a downside that, despite plentiful recession indicators, feels increasingly unlikely. Since the S&P 500 completed its Inverted Head & Shoulders pattern back in December, the index has piled on nearly 14% [see: A Look Ahead at 2024.] 
The many, many bulls point to a generally strong economy, healthy employment picture, and the transformative potential of AI to justify the market’s historically high valuations. The bears see things differently.
For an excellent summation of the bears’ case, take the time to read John Hussman’s Universal Capitulation and No Margin of Safety. He makes some very compelling points regarding valuations…
We’ve observed greater extremes only twice in U.S. financial history: the week ended December 31, 2021, and the week ended August 26, 1929.
Other market gurus have also rung alarm bells, from Bill Gross’ warning of “excessive exuberance” to Chris Senyek’s concerns about the “potential formation of another late-90’s-style TMT [technology, media and telecom market] bubble” to Jeff Gundlach’s admonition that “this feels a lot like 1999…there’s a lot of risk in markets that have run this far.” Even perennially bullish Warren Buffett is sitting on $168 billion in cash, and recently wrote that “markets now exhibit far more casino-like behavior than they did when I was young.”
We’ll take a look at some of the most compelling economic data and charts that should provide guidance on the remainder of 2024 and beyond.
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In a repeat of the most effective algo move of the past 10+ years, VIX broke down following the Fed’s no-news rate decision and press conference yesterday.
As always, this allowed equities to leapfrog an area of stubborn overhead resistance. 
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February PPI came in at twice expectations: 0.6% versus 0.3%. In a replay of the CPI print, stocks dipped for a few seconds before resuming their overnight ramp as algos were more focused on VIX dropping through its 50-DMA just in time for OPEX.
VIX did pop above the 50-DMA…for several seconds. It got better.
Indicators such as RSI still remain on edge.
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We’ve waited a very long time for SPX’s 50-DMA to reach a great spot for a small pullback. It’s finally here.
Will the market cooperate?
NOTE: I will be out of the office between March 4-6, returning on March 7.
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Futures are off moderately in the lead up to tomorrow’s important PCE print.
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