The consumer price index report came in a little softer than expected, but it didn't create the big market rally that many investors were hoping for. The primary problem is that there already had been a sizable move in front of the news and it created conditions for a "sell the news" reaction.
The opening print was immediately sold, but there were a couple of intraday bounces before a weak finish. Breadth was good, which reflected that many investors' main focus shifted away from the index movement and to stock picking.
Small caps were the big winners, which is why breadth was so good. There already were nearly 200 stocks hitting new 12-month highs. Part of this strength is due to the "January Effect" when investors buy the stocks that were dumped for tax losses, and part of the strength is due to good feelings about the steady decline in inflation.
The media had a few blaring headlines about how the CPI report has cemented the likelihood of a quarter-percentage point hike at the February meeting, but that was already the case. Nothing really changed as far as the forecasts of future Fed hikes.
The market will shift its focus now and will weigh corporate earnings to see how much of an economic slowdown may be occurring. We have several big money center banks in the morning, and they will be giving guidance based in part on their economic forecasts.
While it looks like consumer-related inflation is coming down nicely, the Fed is still quite concerned about employment-related inflation. That is a battle that is still being fought.
The good news is that we have some better stock picking taking place, and we aren't seeing giant whipsaws on economic news. The bear market is still far from over, but the trading action has improved.
Have a good evening. I'll see you tomorrow.
