This week’s PPI hinted at a decline in economic activity

Commenting on today’s trading Gorilla Trades strategist Ken Berman said:

decline in economic activity

kreatikar / Pixabay

Even though today’s recovery confirms the resilience of the equities, until a deal is struck, the trade negotiations are still likely to cause wild swings on Wall Street in the coming days. Today’s session was almost the perfect mirror image of yesterday’s one, since investors flocked back into risk assets, but the Volatility Index (VIX) remains elevated, showing that a lot of participants are still cautious.

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The major indices all bounced back following yesterday’s broad sell-off as tech stocks surged higher thanks to the upbeat reports concerning the trade talks with China.  The Dow was up 182, or 0.7%, to 26,346, the Nasdaq gained 133, or 1.0%, to 7,904, while the S&P 500 rose by 66, or 0.9%, to 2,919. Advancing issues outnumbered decliners by an almost 3-to-1 ratio on the NYSE, where volume was well below average.

Another day, another twist in the trade war saga, but this time, bulls got the upper hand. Although today’s reports haven’t confirmed that this week’s talks will be concluded with, at least, a partial deal, the fact that the talks continued in the wake of yesterday’s diplomatic skirmish is a positive sign. While the Nasdaq clearly led the way higher today, thanks to the strength of the tech giants, most of the risk-on sectors joined the rally and defensive issues, such as utilities and healthcare stocks lagged the broader market.

In light of the dissents of the past two Fed meetings, today’s FOMC meeting minutes had the potential to wreak havoc across financial markets, but the fireworks didn’t materialize. Even though rate cut odds are much higher for the rest of the year than at the time of the last meeting, today’s slightly hawkish releases only caused a small bounce in yields. The Central Bank is still expected to ease at last once this year, and should the weakness that we recently saw in domestic economic numbers persist, even more rates cuts could be ahead.

While the trade talks and the Fed stole the show today, the energy sector also had a very active session due to the increased volatility in the oil market. The Turkish military operations in Syria and the global risk-on shift boosted the price of the crucial commodity, but due to the bearish inventory data, oil closed flat, while the related stocks finished with modest gains. From a broader perspective, the sector could remain under pressure, as U.S. production is near its historic high, while the global economy continues to struggle.

The pre-market might once again be very active tomorrow, as besides headline the U.S. Consumer Price Index (CPI) a slew of important European indicators will also be released, such as the British GDP and industrial production. The CPI is expected to come in at 0.1% matching last month’s reading, while the less volatile core CPI is forecast to print at 0.2%. This week’s Producer Price Index (PPI) hinted at a decline in economic activity, and should the consumer indicator confirm that Treasury yields could hit new lows again. Stay tuned!




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Jacob Wolinsky
Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Prior to ValueWalk, Jacob was VP of Business Development at SumZero. Prior to SumZero, Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver