Stocks End Lower On Friday And For The Week On Inflation Concerns  Image: Bigstock Stocks closed lower on Friday and for the week after another higher than expected inflation report. On Friday, the Personal Consumption Expenditures (PCI) index showed inflation up 0.6% m/m vs. the consensus for 0.4%. On a y/y basis it was up 5.4% vs. last month's upwardly revised 5.3% and views for 4.9%. The core rate (ex-food & energy) was up 0.6% m/m vs. the consensus for 0.4%, while the y/y rate was up 4.7% vs. last month's upwardly revised 4.6% and views for 4.3%. Unlike the previous week's CPI and PPI reports, which showed inflation moderating on a y/y basis, albeit at a slower pace, the PCE index showed both headline and core inflation increasing vs. last month. And that has further stoked concern that the Fed, indeed, will raise rates at least as high as they had previously indicated (5.1%), or higher. Fed Funds traders, prior to the recent inflation reports, had been betting that the Fed would call it quits at the 4.75%-5.00% range (midpoint of 4.88%). With the midpoint currently at 4.63%, that would mean only one more 25 basis point hike to get to 4.88%, vs. two more 25 bps hikes to get to the 5.1% level. But after the CPI and PPI numbers, that narrative began to change. In fact, Goldman Sachs increased their terminal rate forecast to a range of 5.25%-5.50% (midpoint of 5.38%), which would mean three more 25 bps hikes (1 in March, 1 in May, and 1 in June). The Fed has acknowledged that inflation has remained persistently high and that it will take some time to get it down. They don't necessarily have to see it at 2% before they let up, but, according to the latest FOMC minutes, they need to have the "confidence that inflation was on a downward path to 2%, which was likely to take some time." And Friday's PCE report showed that the fight against inflation will be a tough one, and a long one. But we won't get any more clarity on the matter for another 3½ weeks, as that's when the Fed meets next (March 21-22).
In other news, Friday's New Home Sales report showed sales rose to 670,000 units (annualized) vs. last month's upwardly revised 625K and views for just 617K. And Consumer Sentiment rose to 67.0 from last month's 66.4 and views for the same. Today we'll get another look at the economy with the Durable Goods Orders report, the Pending Home Sales Index, and the Dallas Fed Manufacturing Survey. And we'll get more earnings with another 322 companies set to report today, including Occidental Petroleum, BioMarin Pharmaceutical, and Universal Health Services, to name a few. (For the week, we'll hear from 1,194 companies in total.) See you tomorrow,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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