The Markets Rebound, Backing The Fed (Technically Speaking For The Week Of 3 / 14-3 / 18)

Stock Market

Bull and Bear Symbol with Stock Market Concept.

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Let’s review this week’s economic data releases.

The producer price index rose:

The Producer Price Index for final demand increased 0.8 percent in February, seasonally adjusted, the US Bureau of Labor Statistics reported today. This rise followed advances of 1.2 percent in January and 0.4 percent in December 2021. (See table A.) On an unadjusted basis, final demand prices moved up 10.0 percent for the 12 months ended in February.

Here’s a chart of the data:

Various PPI indexes

Various PPI indexes (FRED)

The above chart breaks the data down into prices affected by energy (blue and green) and prices not affected by energy (red and purple). Obviously, energy prices are having a profound impact on some of the data.

Retail sales were modestly higher:

Retail sales news release

Retail sales news release (Census)

Here’s a 5-year chart:

Real retail sales

Real retail sales CPI adjusted (FRED)

This data peaked in March 2021. It has been trending sideways since. The current level is still very high (note the above chart is adjusted for inflation; the press release is not).

1-unit building permits declined:

1-unit building permits news release

1-unit building permits news release (Census)

Here’s a 5-year chart of the data:

1-unit building permits

1-unit building permits (FRED)

This data rebounded at the end of last summer and has been rising since. This month’s break is not concerning.

Industrial production rose:

Total industrial production rose 0.5 percent in February to a level that is 103.6 percent of its 2017 average. Manufacturing output increased 1.2 percent after having been slightly changed in each of the previous two months. In February, the index for utilities declined 2.7 percent, and the output of mines edged up 0.1 percent.

Here’s a chart of the data:

Industrial production

Industrial production (FRED)

This data has recovered nearly all its losses from the pandemic.

The Chicago Fed released its latest Financial Conditions Indexes. Here is the risk component:

Chicago Fed Financial Risk Index

Chicago Fed Financial Risk Index (FRED)

This index has been rising, which could indicate upcoming problems.

The St. Louis Fed also released a financial stress index this week:

St.  Louis Financial Stress Index

St. Louis Financial Stress Index (FRED)

This index has also been inching higher.

I’ll cover existing home sales next week after we get additional real estate data.

Remember that most of this data is still pre-Ukraine, so it does not include any impacted data. We should be getting that data soon to see if the war has in any way impacted the US economy. That being said, most of the data is positive. However, prices are still an issue and financial risk is increasing.

Let’s turn to the charts, starting with last week’s action:

5-day SPY, QQQ, DIA, and IWM

5-day SPY, QQQ, DIA, and IWM (Stock charts)

These are great charts. They run from the southwest to the northeast. It does not get more bullish than this.

10-day SPY, QQQ, DIA, and IWM

10-day SPY, QQQ, DIA, and IWM (Stock charts)

The 10-day charts of all the indexes show a clear breaking-out during the last two weeks.

3-month SPY, QQQ, DIA, and IWM

3-month SPY, QQQ, DIA, and IWM (Stock charts)

On the 3-month charts, the SPY, QQQ, and IWM have all broken through resistance. The SPY is now above the 200-day EMA while the QQQ and IWM are still below that level.

Obviously, the markets are pleased with the Fed’s move to raise rates.

It’s also possible the market might be wrong. To that point, consider this editorial from Lawrence Summers.

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