Mid-day: Stocks extend rebound rally

The stock market is in rebound-rally mode on rising hopes that the Russia-Ukraine situation won’t have a material impact on the economy, particularly when it comes to inflationary pressures. The S&P 500 is up 1.9%, the Dow Jones Industrial Average is up 2.3%, and the Nasdaq Composite is up 1.0%.

The cyclical S&P 500 financials (+3.3%), materials (+3.2%), and industrials (+2.6%) sectors are up more than 2.5%. WTI crude futures are down 2.7% to $90.38/bbl, natural gas futures are down 3.4% to $4.50/MMBtu, and wheat futures are down 8.0% to $8.60/bushel.

The catalyst for this thinking appears to be news that Russia is ready to send delegation to Minsk to hold diplomatic talks with Ukraine. That news followed reports indicating that Ukraine’s capital was under attack, signaling that Russia’s “special military operation” is almost over without receiving sanctions on its oil and gas exports.

The fluidity of the situation, though, has the health care (+3.0%), consumer staples (+2.9%), and utilities (+2.7%) sectors also up more than 2.5% as investors respect possibility for a negative headline. Every sector is up more than 1.0%.

Commodities might be down, but inflation is still here, which is an issue that brings the Fed back in the picture. Prior to the open, investors received PCE inflation data for January that continued to run hot.

Briefly, the PCE Price Index was up 0.6% (Briefing.com consensus 0.5%), leaving it up 6.1% year-over-year. The core PCE Price Index, which excludes food and energy, was up 0.5%, as expected, leaving it up 5.2% year-over-year.

The report has supported the seven-basis-point increase in the 2-yr yield (1.61%), yet the CME FedWatch Tool has decreased the probability for a 50-bps hike in March to 21.1% from 33.7% yesterday. The 10-yr yield is up three basis points to 2.00%.

Separately, growth stocks Etsy ( ETSY 149.96, +17.87, +13.9%), Block ( SQ 117.75, +22.72, +23.9%), and Farfetch ( FTCH 20.90, +5.89, +39.2%) are up big following their earnings reports, feeding into the recovery-minded action.

Reviewing today’s economic data:

  • Personal income was unchanged month-over-month in January (Briefing.com consensus -0.3%), but real disposable personal income was down 0.5%. Personal spending was up a robust 2.1% (Briefing.com consensus 1.5%), but clearly, consumers were spending out of savings as the personal savings rate, as a percentage of disposable personal income, fell to 6.4% from 8.2%. The PCE Price Index was up 0.6% (Briefing.com consensus 0.5%), taking the year-over-year rate to 6.1% from 5.8%. The core PCE Price Index, which excludes food and energy, was up 0.5% for the fourth straight month (Briefing.com consensus 0.5%), taking the year-over-year growth rate to 5.2% from 4.9%.
  • The key takeaway from the report is that the Fed still has an acute inflation problem on its hands with, or without, the Ukraine situation.
  • Durable Goods Orders jumped 1.6% month-over-month January (Briefing.com consensus 0.6%) following a 1.2% increase in December. Excluding transportation, durable goods orders were up 0.7% (Briefing.com consensus 0.3%) on the heels of a 0.9% increase in December.
  • The key takeaway from the report was the recognition that business spending picked up in January, evidenced by the 0.9% increase in nondefense capital goods orders excluding aircraft that followed a 0.4% increase in December.
  • The final reading for the University of Michigan Consumer Sentiment Index for February was revised up to 62.8 (Briefing.com consensus 61.6) from the preliminary reading of 61.7. The final reading for January was 67.2.
  • The key takeaway from the report is that the decline in sentiment in February was driven entirely by households with incomes of $100,000 or more, demonstrating the growing concerns about inflation, rising interest rates, and loss of purchasing power that could eventually manifest itself in weaker levels of consumer spending in coming months.
  • Pending home sales fell 5.7% m/m in January following a revised 2.3% decline (from -3.8%) in December.