The word I: the market increases after the arrival of producer prices …

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(Market opens Thursday) All eyes appear to be on the big “I” as investors focus on inflation with two price indicators hotter than expected this week. But it also appears that investors are facing the prospect of higher prices, especially those who buy into the Fed’s view of “transient” inflation.

The government’s producer price index in April registered a 0.6% increase, ahead of Briefing.com’s consensus forecast of a 0.3% gain. The PPI news comes a day after the government consumer price index in April rose much more than expected, with core CPI gaining 0.9% as a consensus from Briefing.com s ‘expected the measure of inflation to rise by just 0.3%.

The market, as measured by stock index futures this morning, did not initially appear to react too much to producer inflation data. Despite concerns about inflation, it looks like yesterday’s bad news on the inflation front has dampened the blow from the PPI data somewhat. It could also be that the PPI news was somewhat offset by a better-than-expected reading on initial jobless claims, which came in at 473,000 while 510,000 was expected in a Briefing.com consensus.

Rising inflation worries Wall Street because investors fear that the Fed will have to react by reducing its asset purchases or by raising its key rate earlier than expected. Inflation expectations have also hurt growth stocks, including big names linked to technology, as expectations of rising costs can hurt the profitability outlook of these companies.

The gas pipeline metaphor

But at least part of it was expected. To some extent, reopening the economy was bound to have a “coil spring” effect on demand, but with supply still online after a long shutdown, it is a lag that could be transitory. It’s a bit like people looking to buy gas on the east coast. Although the pipeline has been restarted, it will be some time before local markets stabilize.

Despite this week’s selling, it’s worth remembering that we recently had record highs so stocks were likely due to a slight pullback. Some of the selling in recent weeks has been tempered by a bearish buying mentality in tech stocks. While it appears to be the case again today, we’ll have to see if investors continue to look to this manual.

In the news of the company, You’re here (TSLA) turned back on Bitcoin. The electric vehicle maker has stopped accepting cryptocurrency for auto purchases over “the rapid increase in the use of fossil fuels for bitcoin mining and transactions,” according to a tweet from the CEO Elon Musk.

He said the company would not sell any of its bitcoin holdings and use them for transactions “as soon as mining shifts to more sustainable energy.” Nonetheless, bitcoin has fallen more than 7% this morning, and other cryptocurrencies seemed to be falling in sympathy, although Musk says cryptocurrency is a “good idea” that “has a bright future” and adds that Tesla is looking at cryptocurrencies in addition to bitcoin which use less than 1% of bitcoin’s energy per transaction.

Technically speaking

Something that needs special attention today is the technical table. Despite the strong sale yesterday, the S&P 500 Index (SPX) was unable to break out its 50-day moving average at 4050 (although futures plunged below the 50-day overnight this morning).

Holding the 50 Days isn’t hard to grasp after a day like Wednesday, but the fact that the SPX 50 Days have stood so far could be something the market can hang its hat on. For what it’s worth, the 50 Days was tested twice in March and held up both times.

News from the Nasdaq-100 (NDX) wasn’t that technically hot yesterday. It is now well below its 100-day moving average, closing near 13,000 on Wednesday. There is a long dip from there to the 200-day moving average below 12,500 (see chart below). below).

Disney, Airbnb profits could reopen, inflation barometers

As reported here yesterday, the big profit report to look at later is Disney (DIS). With DIS, two unanswered questions are how the theme park industry is doing now that Disneyland is welcoming visitors, and whether the same challenges for streaming subscribers. Netflix (NFLX) reported to T1 affected DIS. Some analysts are also wondering if DIS could start considering bringing back its dividend, one of the victims of Covid.

Also, listen to the call of the DIS if they mention anything about the difficulty in finding workers to take care of these resorts and theme parks. Labor shortages are something a few other companies have mentioned and could play into inflation fears.

There is a strong demand for workers across the economy, which we saw in Tuesday’s Job Openings and Labor Turnover (JOLTS) report. If people want to stay home because of Covid or because they are receiving government benefits, companies may need to increase their pay offers to keep people coming back. And rising wages can often trigger even more inflation. A big company like DIS – with its hands in so many sectors of the economy – can sometimes be a good barometer of the jobs and wages situation, so it’s quite useful to report today right after this data from government inflation.

One thing you don’t need to tell yourself about DIS revenue is obvious every time you drive, especially in a big city like Chicago where premium gas prices are now over $ 4. the gallon. When gasoline prices start to climb, it can hit consumers quite quickly in their wallets and you wonder how much that will affect driving plans as well as hotel and restaurant operations. Airfares still seem cheap enough, but anyone who follows the markets knows how vulnerable airline profits are when jet fuel costs start to rise.

The other earnings report to watch this afternoon is also related to the reopening of the economy as Airbnb (ABNB) opens its books. The key figure to watch for this newly opened vacation rental company is gross bookings, which have been hit by the pandemic. There is, however, speculation that companies like ABNB might be able to get ahead of hotels because they offer people a home of their own, not a room connected to hallways, elevators and lobbies. .

Beyond inflation, other problems are getting worse: For many, it’s easy to blame inflation for the market turmoil. We have certainly written enough in this column. However, even without the pressure on prices, stocks could face a difficult path. Recent, mediocre trading suggests to some analysts that most of the good news on the economy and earnings could already be factored in, with some tough comparisons looming in 2022. Remember, the market tends to ” negotiate in advance ”. That’s why so many people wondered last year why stocks gained ground as the economy stuttered. The answer was 2021. Now that the economy looks set to shoot most of the cylinders, once again Wall Street is focusing on what will happen next, after the party, so to speak.

On the margins: On a related note, investors appear to be looking beyond improving profit margins for companies today and towards possible tightening of those margins in the coming quarters if inflation continues to be. a factor. Right now, S&P 500 profit margins appear to be in great shape, with the S&P 500’s blended net profit margin at 12.6% in the first quarter, according to research firm FactSet. This compares to the five-year average of 10.6%, and would be the highest since FactSet started tracking the measure in 2008, if it holds for the entire earnings season. Nine industries report a year-over-year increase in their net profit margins in the first quarter.

Rising costs threaten those margins and perhaps obscure the future profit situation a little. As of last week, earnings growth projections for the second quarter and full year 2021 look excellent if they come close to the 56.7% and 30.9% expected by research firm CFRA. However, profit growth in 2022 has already faced difficult comparisons to 2021 and is only expected to increase by 11.8%, according to CFRA. If inflation continues – and remember that a month of data is not a trend – analysts may be forced to lower some of their expectations for profit growth in 2022. As reported yesterday, some companies enjoy pricing power and may potentially benefit from inflation, especially in the commodities, materials and energy sectors. Others, not so much, and reduced margins could mean reduced profits.

Take me to your boss: A problem for the market is its missing leaders. Remember that in recent years we have almost always been able to count on stocks like Apple (AAPL), TSLA, Microsoft (MSFT) and other tech mega-caps for finding buyers when times are tough. It has put a kind of net under the market, even though these big names have sometimes lost ground. The market tended to take it on the chin when they did, particularly in late 2018 when Tech fell off a cliff and the SPX followed, almost falling into bearish territory (down 20% relative to the vertices).

We’re not saying it’s going to happen again now (although there is every reason to believe it will happen eventually, as bear markets are normally part of the cycle). One level to watch out for is $ 122.96 for AAPL. That’s the stock’s 200-day moving average, something AAPL hasn’t closed below since April 2020 – until yesterday, when it fell 19 cents below. One day is not enough to be definitive, but a few days below the 200-day MAI could mean more problems to come, and not just for AAPL. “A breach of this key technical level could put additional pressure on other tech stocks given Apple’s mega-cap status and its inclusion in many ETFs / holdings,” Briefing.com noted Wednesday.

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