Medicare Agent News: Bank Blow Back

Tuesday, January 3, 2023

Bank Blow Back

By Nicholas Jasinski | Thursday, July 14

Pressure Rising. Another white-hot inflation report this morning along with hawkish commentary from a Federal Reserve governor conspired to knock most stock indexes lower for a fifth-straight session. A pair of gnarly bank earnings didn't help either (more on that below).

But, like yesterday, this morning was the worst of it. Stocks rose through the session to finish near their highs of the day. By the close, the S&P 500 was down just 0.3%, the Dow Jones Industrial Average was off 0.5%, and the Nasdaq Composite was about flat.

Today's producer price index for June came in higher than economists had been forecasting, following yesterday's consumer equivalent. Prices paid by companies rose 1.1% in the month, compared with a 0.8% consensus forecast increase. It stretches the year-over-year rise in the index to 11.3%, below only March's record 11.6% rise.

Input costs from raw materials, to transportation, to wages continue to rise. Eventually, those higher costs get passed along to consumers, come out of companies' profit margins, or both.

The silver lining in the report was that the core PPI, which strips out food, energy, and trade services, was up 6.4% year over year in June, down from May’s 6.7% rise.

“When removing these volatile components, PPI appears to have peaked and is starting to roll over, a tell-tale sign that the economy is shifting into late-cycle territory,” wrote Peter Essele, head of portfolio management at Commonwealth Financial Network, today. That would mean peaking inflation and economic growth.

Barron's Sabrina Escobar has more on today's PPI report here.

The data won't do anything to change the Fed's aggressive rate-hike trajectory, expectations around which have been the strongest driver of markets this year.

Speaking today, Fed governor Christopher Waller said that he supports a 0.75 percentage point increase at the central bank's next meeting on July 26-27. He said that markets have gotten ahead of themselves in pricing in a full percentage point hike, but that such a rare decision wasn't off the table.

"If the [economic] data comes in materially stronger than expected, it would make me lean towards a larger hike at the July meeting to the extent it shows demand is not slowing down fast enough to get inflation down," Waller said.

One of those upcoming data points is tomorrow's retail sales report for June. Despite high inflation and dour sentiment, consumer spending has held up relatively well, and economists are predicting a 0.8% increase for June, following a 0.3% decline in May.

Fed officials will also get a look at several U.S. housing-market indicators and another consumer confidence survey before the conclusion of their next meeting in late July. If those are strong, bet on a larger rate hike.

“The higher they raise rates, the more the recession outlook increases,” wrote NatAlliance Securities’ Andrew Brenner today.