PPI, PMI and other Key Themes To Watch This Week

It was an exciting week in the markets. The S&P 500 ($SPX) (SPY) really just stayed in an extended trading range, but news releases had it pop to the top of the range and then drop back into the middle of it. Even with all the price drama, it still closed up just 1.14% on the week.

The Dow Jones Industrials Index ($DOWI) (DIA) was up +0.24% for the week while the Nasdaq 100 Index ($IUXX) (QQQ) was +2.03% higher.

Leading the charge this week were the communication sector and consumer discretionary sector, with Financials and Energy being the biggest losers on the week. Seasonality could potentially be playing a role in it as discussed last week, but it could have also been better than expected inflation data. Whatever it was, this week is also poised to be an exciting week in the markets.

Here are 5 themes to watch in the market this short week:

ISM Services PMI

Manufacturing PMI came out last week under 50, which signals a contraction in manufacturing. This has historically been an issue for the economy as a whole and has the potential to be a precursor for a recession. ISM services PMI comes out on Monday and will display the same information. If we print under 50, which will be a huge miss from the expected 53.5, then it too will signal a slowdown in the services sector. Manufacturing PMI caused some movement in the markets, it is possible that the Services PMI also causes some exciting price action. 

Core PPI

Core PPI comes out on Friday and this is the price of finished goods and services minus food and energy costs. This will be important to see if the trend of improving inflation continues. Most of the inflation data that has come out in the past month has shown slight improvements in costs and if the PPI is on track it will signal that the Fed is becoming effective in their effort to combat inflation. This has been an exciting news release this past year, and it is possible that this release will be no different.

Unemployment Claims

Unemployment claims are due Thursday at 8:30am est. To keep in line with our economic indicators this will show if more or less people are collecting unemployment benefits. With the Fed having the goal to weaken the economy to control inflation, if this number comes in higher than usual it has the potential to be seen as good news and the Fed policy is working. This could be a short term reaction though, as a higher than expected number would mean that employment is getting worse in a season where it is usually strong. 

Crude Oil Inventories

Crude oil inventories has the potential to become a much more important report in the coming months. With the US facing some potential diesel shortages, the whole world in an energy crisis, and a potential rail strike, if inventories continue to deplete it could be a potential tailwind for energy prices. This might have a mixed effect on equities, anything energy related could see this as a positive while anything that requires energy as an input could see this as a negative. Either way it will be important to see if we will need to increase production or we are at a point where there is enough supply to meet current demand. 

Consumer Sentiment

Friday also has the UoM consumer sentiment number coming out. This is a leading indicator for economic health and measures the current and future economic outlook through a survey of consumers. This has a power to be a market mover, especially in December when spending is arguably at its highest for the Christmas Season. If this number comes out weaker than expected it could signal a pessimistic outlook which will lead to less spending and usually contracting earnings. While it may produce some price movement at report time, this is something to keep an eye on for the future as well and look for trends in this data release.

Best of luck this week and don’t forget to check out my daily options article.

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