Bring On The CPI!
The biggest jump in the Producer Price Index in 10 years rattled stocks
Friday as traders dumped technology and sent the Nasdaq down 5% by the close.
Banks and insurance held up well, though, and that kept the Dow and S&P 500
losses contained at 0.8% and 1.8%, respectively.
Earnings warnings and layoff announcements from Nortel, Dell and Hewlett Packard after the bell
Thursday seemed to indicate that the economy was limping toward recession, so
Friday’s PPI numbers alarmed traders and stirred up the old fears of inflation,
or worse yet 1970s-style stagflation.
The PPI rose 1.1% while the core rate rose 0.7%, which were sharply higher than the 0.2% and 0.1% that analysts had expected.Â
Volume lightened by about 10% on the Nasdaq from Thursday’s level as just
1.87 billion shares traded. NYSE volume came in at 1.23 billion shares.Â
According to preliminary numbers, the Nasdaq sank 127.29 to 2425.62, the Dow
fell 91.14 to 10,799.88, and the S&P 500 lost 25.05 to 1301.56.
While some analysts felt the PPI spike may have been an anomaly, most
remained cautiously optimistic about the current market dynamics. Next week’s
Consumer Price Index (CPI) should clarify how seriously the market should take
Friday’s PPI.
“I think the main thing you have going for you right now is somewhat obvious in that you have an accommodative Fed. I think the
article that was in Barron’s a couple of weekends ago was pretty good in saying that if you have just one
market timing tool, then it should be the Fed. Buy when the Fed is lowering interest rates, and sell when they’re raising
rates,” said Liz Ann Sonders, Managing Director, Campbell Coperthwait.
“I think that’s going to provide a lot of liquidity into the system. Although the Fed did make some comments that
suggest that they may be less ready to cut rates intra-meeting, I still think there’s a pretty good shot that we’ll get another 50 basis point cut, if
not before the next meeting, then certainly at the next meeting,” she
added.
Top sectors were gold and silver
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up 0.7%, insurance
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up 0.3%.
Hit hardest were semiconductors
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down 5.4%, and computer technology
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Among the big-cap tech casualties were JDS Uniphase
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5/16 or 20% to 35 13/16 and Sun Microsystems
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23 3/16.
Banks avoiding the downdraft to lead the BKX included Comerica
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3.9%, National City
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Dow winners were Exxon Mobil
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1.7%, and Coca-Cola
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PowerRating), up 1.7%. The big loser was Hewlett Packard
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down 8.8%.
Looking ahead, traders will be watching next Wednesday’s Consumer Price Index
numbers closely to see if they support or contradict Friday’s surprisingly high
PPI. Analysts expect a 0.2% increase in both the CPI and CPI core rate.