Stocks fell slightly this morning as the market wrapped up its worst week in almost two months. The Dow held on to a small gain through noon while the S&P and Nasdaq Composite both slipped lower. Treasury yields gained, pushing the 10-year Treasury yield to 3.72% – a high unseen since early January.
In general, though, it was a “sleepy” morning session marked by continued intraday volatility.
“[There are] some mixed signals here, which I think is why volatility is up,” said Banrion Capital Management founder Shana Sissel.
“There’s not really a consensus coming out with leading indicators that give you a lot of confidence of what’s coming next. And the markets hate that.”
Bank of America reported today that despite slowdown fears, credit and debit card data from January indicate that consumer spending may be stronger than expected.
“We have seen signs of a strengthening in consumer spending at the start of this year – Bank of America credit and debit card spending per household rose 5.1% year-over-year (YoY) in January, compared to 2.2% YoY in December. Total payments across all channels (Automated Clearing House (ACH), Bill Pay, Credit and Debit Card, Wires, Person-to-Person, Cash and Check) grew 7.5% YoY,” read a note from the bank.
Much of this growth was driven by a Covid resurgence last January. Still, Bank of America views it as a positive economic sign.
“More broadly, the data suggests that while lower income consumers are pressured, they still have solid cash buffers and borrowing capacity. Even for the lowest income cohorts this should provide support for some time yet,” wrote the bank’s strategists.
But rising spending could also have an impact on inflation, which may prompt the Fed to shift more hawkish for the remainder of the year. The University of Michigan also released its Consumer Sentiment Index today and February’s preliminary reading clocked in at 66.4, above the Dow Jones estimate of 65.1.
The current conditions index advanced to 72.6 from 68.4 in January while future expectations slid from 62.7 to 62.3.
With sentiment rising, one-year inflation expectations increased as well to 4.2%, up from 3.9% in January. That was a surprising upturn following several months of declines.
“Overall, high prices continue to weigh on consumers despite the recent moderation in inflation, and sentiment remains more than 22% below its historical average since 1978. Combined with concerns over rising unemployment on the horizon, consumers are poised to exercise greater caution with their spending in the months ahead,” wrote survey director Joanne Hsu.
In general, investors should probably favor the University of Michigan’s (mostly forward-looking) survey over Bank of America’s (backward-looking) spending data. A weak January 2022 drove much of the YoY spending growth that Bank of America observed.
Regardless, both reports indicated the same thing: consumer sentiment has improved but so too have short-term inflation expectations.
Will that materialize in a more hawkish Fed? It seems like it should. We’ll find out whether inflation’s rising again on Tuesday when the next CPI is released. And, if it is, you can be sure that the current rally will finally come to an end.
