Stocks End Mixed, Small-Caps Soar After Better Than Expected CPI Inflation, PPI On Deck This Morning Stocks closed mixed yesterday with the S&P and Nasdaq falling by -0.88% and -1.95% respectively, while the small-cap Russell 2000 and mid-cap S&P 400 soared by 3.57% and 2.45%. Yesterday's better than expected Consumer Price Index (CPI) inflation report showed headline inflation falling by -0.1% m/m vs. last month's 0.0% and views for 0.1%. The y/y rate came in at 3.0% vs. last month's 3.3% and estimates for 3.1%. The core rate (ex-food & energy) was up 0.1% vs. last month's 0.2% and the consensus for 0.2% as well. The y/y rate was at 3.3% vs. last month's 3.4% and views for 3.5%.
Not only did it show inflation continuing to ease, but it fell even more than expected, with some now speculating that the Fed might even have room to cut 2 times this year rather than just the 1 time they currently foresee. The price action yesterday was interesting. The S&P and Nasdaq, which have been powered higher by the big-tech/AI trade, took a breather yesterday. But that respite appears to have allowed the small and mid-caps, which have severely lagged the aforementioned indexes this year, to shine. And yesterday's inflation report, which could mean the Fed is able to cut rates sooner rather than later, and maybe by more than expected, helped ignite a surge in those smaller capitalized names, which is likely more important to those companies than the larger ones. There was talk previously of a possible rotation beginning to take place. Then the larger-cap indexes soared even more, and talk of rotation faded. But the rotation talk is back on the table. And with a little bit of follow-through, it might actually happen. I'm not suggesting in the least that the big-tech/AI trade is over. This is a multi-year trade that will likely last for years. But there's room for this bull market to expand. And seeing the other cap-sizes respond is a good thing for the market. In other news, Weekly Jobless Claims fell by -17,000 to 222,000 vs. estimates for 239,000. The smoother 4-week moving average, however, came in at 233.50K vs. last week's 238.75K. Today we'll get another look at inflation with the Producer Price Index (PPI) inflation report. The consensus is calling for the headline number to be up 0.1% m/m vs. last month's -0.2%, while the y/y rate rises to 2.3% vs. last month's 2.2%. The core rate is expected to be up 0.2% m/m, with the y/y rate coming in at 2.3%, in line with last month's pace for the same.
We'll also get the Consumer Sentiment report. And we'll get earnings reports from several of the big banks today including JPMorgan Chase, Citigroup, and Wells Fargo, before the open, to name a few. With one more day to go, all of the major indexes are up for the week, expect for the tech-heavy Nasdaq. But they are less than 0.50% away from another green arrow for the week. If so, that would make it 6 up weeks in a row. If not, the streak ends at 5. But what a streak it's been. And regardless, I'm expecting another one to unfold soon. With a new earnings season upon us, that could be just around the corner since stocks typically go up during earnings season. Best,  Kevin Matras
Executive Vice President, Zacks Investment Research | 
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