US stocks ended Friday with a mixed performance after St. Louis Fed President James Bullard indicated he wouldn’t rule out a 50 basis point hike at the March Fed meeting.

Many hotter-than-expected inflation statistics and solid job reports have made the hawkish move more likely, even though President Bullard is not now a voting member of the FOMC. The probability of a rate hike of 50 basis points is currently priced in by the market at around 20%.

The S&P 500 chart above shows that the trend is slightly bullish but is a price consolidation. We could be in a ranging pattern for some time until inflation drops below 5% and unemployment over 5%.

However, my gut and past experiences tell me we could be looking at another drop in the market very soon. It could happen due to geo-political events (Russia War, Budget Battle, etc.) or economic news. Still, I do think it is very likely, and I would not consider jumping back into equities right now if you are holding off.

Consumer Price Index Figures

According to Bureau of Labor Statistics data, consumer prices in the United States rose 0.5% in January. This is a faster rate of increase than the 0.1% and 0.2% seen in December and November, respectively. While the all-items index was up (+6.5%) in December, it is up (+6.4%) before seasonal adjustment over the past 12 months. Since hitting a high of 9.1% in June, the annual inflation rate has steadily decreased over the past seven months.

As measured by the core consumer price index, inflation was up (+0.4%) in January, the same as the previously reported increase (+0.4%). Since December, the annual inflation rate, measured by the core Consumer Price Index has decreased from 5.7% to 5.6%. Over the past year, the shelter index rose 7.9%, nearly half of the total increase in Core CPI.

PPI Data

After revised readings of (-0.2%) and (+0.3%) for the prior two months, the Labor Department stated that the Producer Price Index for final demand climbed by 0.7% in January after adjusting for seasonal factors.

A leading indicator of inflation, the PPI tracks changes in supplier prices to companies. After reporting annual increases of (+6.5%), (+7.3%), and (+8,2%) in the three months prior, the PPI index maintained its slowdown in January, recording an annualized (+6.0%).

World

Since late October, the world’s major stock markets, especially those in Europe, have witnessed a robust resurgence that has persisted through the middle of February. As many market participants have warned, the likelihood of this rise continuing is minimal; the market appears to be taking a break this weekend. At the start of the week, multiple indices, including the CAC40 and the FTSE100, reached new highs.

CALENDAR & EVENTS

• Tuesday, February 21: Existing Home Sales (MoM) (January)
• Friday, February 24: PCE Price Index (MoM) (January)
• Earnings
• Debt Ceiling Fight
• US-China Trade War

Tuesday, we’ll see February’s ZEW, Germany’s financial confidence index, and the leading PMI indicators. Investors are keeping their fingers crossed for releasing the minutes from Wednesday’s most recent Federal Reserve meeting. A revised estimate of the fourth-quarter US GDP will be released on Thursday. On Friday, the United States will release its PCE inflation rate for January at a time when the trend of prices is unstable.

Earnings

Pay attention on Tuesday, February 21st, as Walmart (WMT), Home Depot (HD), Molson Coors (TAP), Caesars Entertainment (CZR), and Palo Alto Networks (PANW) all report earnings (PANW).

Stellantis (STLA), Baidu (BIDU), TJX Companies (TJX), eBay (EBAY), Nvidia (NVDA), Etsy (ETSY), and Lucid Group (LUCD) are all scheduled to release earnings on Wednesday, February 22.

Alibaba (BABA), Wayfair (W), Booking Holdings (BKNG), Moderna (MDNA), Domino’s Pizza (DPZ), Block (SQ), and Keurig Dr Pepper (KDP) will all report earnings on Thursday, February 23.

Friday, February 24th, Earnings Season Begins for EOG Resources (NYSE: EOG) and Taboola (NASDAQ: TBLA).

BONDS

Bond prices climbed this week due to positive economic data. The mood is rather dismal due to the combination of the US CPI (which did not decline as expected) and leading indicators, which continue to worsen.

The so-called “smart money,” which consists of investors with a high propensity to predict market movements, has driven the yield on the US 10-year bond to our target zone of 3.90–3.95%. Meanwhile, junk bonds (JNK) have reached a friendly resistance zone at $94 and have resumed their starting downturn, with possible new lows ahead. Keep in mind that the relationship between price and yield is often negative.

COMMODITIES

OIL & ENERGY

The news of a 26 million barrel increase in US strategic reserves contributed to the decline in oil prices this week. Some experts predicted that these measures to protect American customers from growing energy costs would be scrapped or at least put on hold. Other than that, OPEC showed some optimism it hadn’t displayed in months by raising its demand forecast for 2023.

OPEC’s prediction for global oil consumption this year was increased by 100,000 barrels per day to account for the expected impact of China’s economic rebound. A barrel of North Sea Brent is around $83.3, while a US WTI can be purchased for about $77. Little news to report on the natural gas front, where prices have been falling steadily to 49 EUR/MWh for the Netherlands TTF.

PRECIOUS METALS & GOLD

This week, the already erratic behavior of industrial metals was compounded by heightened fear of losing money and a higher US currency. On the London Metal Exchange, the price of a ton of copper hovers around $9,000.

Norsk Hydro’s leadership recently reminded us that supply risks persist in some industries because of the significant challenges they confront due to the unpredictability of energy prices. Gold also fell, trading at $1824 per ounce, as rising bond yields dampened investor demand.

CRYPTOCURRENCY

As of this writing, Bitcoin’s price has recovered more than 9% this week and is approaching $25,000. On Thursday night, the digital currency reached a new all-time high of $25,000.

Cryptocurrencies have halted their weekly gains as the macroeconomic climate has worsened, or at least been less favorable than projected by market participants. Bitcoin’s nearly 50% recovery since the beginning of the year has given crypto-investors reason to celebrate for now. Inflation and the monetary policy slider will remain the market’s most important indicators over the next few weeks.