Highlights
Stocks slipped Friday as investors reacted to a much hotter than expected producer prices report and to President Trump's selection of Kevin Warsh as his new Federal Reserve chair. The Dow Jones industrial average and the S&P 500 both slipped 0.4 percent and the Nasdaq lost 0.9 percent. US Treasury yields declined in shorter maturities and rose at the very long end. Oil prices dipped but the dollar gained across almost all currency pairs.
The choice of Warsh generated a muted negative reaction in stocks and other risk assets as he was seen as a relatively hawkish choice among Trump's finalists for the job. Warsh is expected to push for lower interest rates but not as much as Kevin Hassett or Rick Rieder, the other leading contenders. That combined with a surprisingly big jump in PPI-FD to undercut stocks. Markets also appear in risk-off mode given fear of a US strike against Iran.
The expectation of somewhat more aggressive rate cuts under Warsh than under Jerome Powell sent short maturity yields lower and long end yields higher on the view that rate cuts are coming that will depress short rates while higher long-term inflation is likely, which would boost longer rates.
Defensive plays outperformed on Friday, paced by consumer staples, including Colgate Palmolive, which rallied on better than expected sales guidance.
Definition
Market Reflections track market reaction to the trading day's major events. Economic data, policymaker speeches, and company news are featured in this report as well as key indexes and financial instruments.
Description
Understanding why markets respond as they do is fundamental for an investor. Market Reflections help explain how the day's events, news, and data impact the outlook for the economy and for market prices.