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Consumer Inflation Burns a Little Hotter, So Stocks Cool Off

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May 22, 2015

U.S. stock averages opened a touch in the red Friday after a stronger-than-expected consumer price index report raised worries (at least a little bit) for higher interest rates yet this year to counter inflation risks. Even with the soggy start, the main indexes were on track to post modest weekly gains absent some drastic action in today’s pre-holiday session. The S&P 500 (SPX) trades just off the record high scored Thursday. The Dow Jones Industrial Average (DJIA) also slipped. The tech-heavy NASDAQ Composite did push a touch above its previous record close in early trading. Oil is on track to close with a weekly loss, still churning just below $60 a barrel. The dollar gained after the CPI reading and 10-year Treasury yields rose to 2.2%.

FIGURE 1: TWISTING NEAR RECORDS.

The S&P 500 (SPX) finished off its recent record high on Thursday and churns near there in early Friday action. Chart source: TD Ameritrade’s thinkorswim® platform. For illustrative purposes only. Past performance does not guarantee future results.

Lunch Date with Yellen? Traders may have wanted to short-time it on Friday given Monday’s market close but Federal Reserve chief Janet Yellen unintentionally spoiled some long-weekend plans. She’s got a 1 p.m. Eastern speech today. Stock market sensitivity to interest-rate commentary ahead of a June policy meeting puts that speech in the spotlight. On Wednesday, minutes of the Fed’s late-April meeting suggested it was unlikely that the first rate increase would come in June. The general Street thinking is the Fed won’t move any earlier than September, if then. Let’s see if Yellen offers any clarity. And when she’s done today? Likely a rush for the exits like the building’s on fire. Remember, U.S. markets are closed Monday to observe Memorial Day.

Housing and Health Care. U.S. consumer prices rose a seasonally adjusted 0.1% in April. Energy prices slumped 1.3% last month while food prices were unchanged. The core CPI, which excludes volatile food and energy costs, gained 0.3%, driven by housing expenses and also a gain in medical care costs. This is the fastest rate of core prices since January 2013 and hotter than Street economists expected. As for the bigger picture (and that’s what the Fed is watching after all), consumer prices have fallen an unadjusted 0.2% over the past 12 months, the largest decline since October 2009. Core prices are up 1.8% over the past year, the same rate as in March.

Range Intact. A bit of a broken record, I know, but that’s this market. So far. Broad-market support is eyed at SPX 2120. And on the upside? Resistance still holding strong at 2145.

Good trading,
JJ
@TDAJJKinahan

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JJ began his career in 1985 as a Chicago Board Options Exchange...

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