U.S. Market Wrap and Forecast for Thursday

Major benchmarks sold off overnight and gapped down at the start of Wednesday’s U.S. session. The reversal confirmed channel resistance above 3,900 on the SP-500 index. Selling pressure felt technical in nature rather than a change in sentiment, with parties unknown shifting toward more risk-adverse instruments. The WTI crude oil contract ended regular hours above 61, driven higher by the Texas freeze, while gold rolled over and silver bounced higher.

Bonds Bounce at Lows

January Retail Sales surged more than 5%, much better than 0.8% estimates, catching Wall Street analysts off-guard. $600 per person stimulus checks and debit cards were distributed before Trump left office, which citizens promptly used to buy furniture, electronic goods, appliances, and home furnishings. It’s surprising that economists failed to account for this capital in computing estimates because we’ve been taught they’re infallible.

Producer Price Index (PPI) did exactly what was expected, surging 1.3%, which marked the biggest monthly gain since at least 2009. Bonds bounced at lows after the news in a contrary reaction, suggesting that yields have stretched too far too soon. In any case, inflation has finally turned the corner, suggesting that market participants with less than 20 years of experience read up on prior economic cycles. Google ‘Paul Volcker’ for a quick tutorial.

Heading Into Friday Expiration

Dow component Walmart Inc. (WMT) reports Q4 quarter earnings in Thursday’s pre-market, with analysts expecting a profit of $1.51 per-share on a $147.0 billion in revenue. Wednesday’s retail sales report alters the playing field, perhaps ending a slow drip of selling pressure that’s drained shareholders since late 2020.  The stock is unlikely to break out soon but the news could attract buying interest, especially if they exceed expectations.

A dysfunctional options expiration tape makes sense at the end of a contract in which novice traders fueled the biggest short squeeze in several decades. Outstanding positions need squaring into Friday’s finale, explaining why SP-500 Volatility Index is getting jumpy. Even so, the longer-term mantra remains the same, with another round of stimulus and dovish Fed policy blowing up the biggest bubble since the late 1990s.

For a look at all of today’s economic events, check out our economic calendar.