S&P 500; US Indexes Fundamental Daily Forecast – Weak PPI Boosts Chances of Lower Interest Rates

The three major U.S. stock indexes reached record highs on Thursday after weak U.S. producer inflation data suggested the Fed may have to cut its forecast for three interest rate hikes in 2018. Some investors attributed the rally to speculative bets that economic growth would pick up steam.

In the cash market, the benchmark S&P 500 Index settled at 2767.56, up 19.33 or +0.70%, the blue chip Dow Jones Industrial Average closed at 25574.73, up 205.60 or +0.81% and the tech-based NASDAQ Composite Index finished at 7209.37, up 55.80 or +0.77%.

The futures markets also posted strong gains. The March E-mini S&P 500 Index finished at 2769.50, up 19.00 or +0.69%. The March E-mini Dow Jones Industrial Average closed at 25555, up 204.00 or +0.80% and the March E-mini NASDAQ-100 Index settled at 6726.50, up 49.25 or +0.74%.

The S&P 500 Index was driven higher by surging energy prices. A strong performance by Boeing was the biggest contributor to the Dow’s gains. The NASDAQ Composite was helped by a 0.6 percent gain in shares of Apple.

Stocks received a boost before the opening when the U.S. government announced that factory inflation came in lower than expected. This raised doubts about the number of future Fed rate hikes. Remember the stock market loves low interest rates and low inflation.

On Thursday, U.S. producer price data showed the index fell for the first time in nearly 1 ½ years in December, which could temper expectations that inflation will accelerate in 2018.

The Labor Department said its producer price index for final demand slipped 0.1 percent last month. That was the first drop in the PPI since August 2016 and followed two straight monthly increases of 0.4 percent.

In the 12 months through December, the PPI rose 2.6 percent after accelerating 3.1 percent in November. Economists had forecast the PPI rising 0.2 percent last month and increasing 3.0 percent from a year ago.

Last year, the PPI increased 2.6 percent after advancing 1.7 percent in 2016.

Forecast

On Friday, investors will get the opportunity to respond to earnings reports from BlackRock, J.P. Morgan Chase and Wells Fargo. Earnings are expected to have grown by 10.6 percent during the fourth quarter, according to S&P Capital IQ.

Investors will be looking for evidence about how the recent changes to the U.S. tax code will impact each company.

On the data front, U.S. consumer inflation is expected to come in at 0.1%. Core CPI is forecast at 0.2%. Retail Sales are expected to show an increase of 0.5% and Core Retail Sales are expected to rise 0.3%. Lower-than-expected numbers should be bullish for stocks.