Today's economic data was a mixed bag for investors, with a decline in producer-level inflation being good news for those concerned about inflation but a decrease in retail sales suggesting damage to the economy.
The decrease in retail sales can be attributed to higher prices and rising interest rates cutting into consumer spending. The consensus figures for S&P 500 earnings are also in decline for the first half of 2023, which is a negative sign for the market.
U.S. stocks were initially traded higher but later lost momentum and ended up trading lower. The S&P 500 index has had a positive start to the new year, with a 2.3% increase.
This can be attributed to the hope that inflation will ease, allowing the Federal Reserve to be less aggressive in its monetary tightening cycle, reducing the risk of an economic hard landing and supporting company earnings.
Federal Reserve officials have determined to bring inflation down through more interest rate hikes. St. Louis Fed President James Bullard stated that the Federal Reserve should be quick to raise its benchmark rates until they reach above 5%.
Cleveland Fed President Loretta Mester also acknowledged that the economy is showing signs of improvement, but further rate hikes are still necessary to achieve the desired outcome. Mester is considered one of the more hawkish members of the central bank's interest-rate-setting committee.
The recent S&P 500 index price action has reconfirmed resistance at the 4,000 level and the top of a downward-sloping channel, indicating that January may end with the market flat to down, which could be a sign of a difficult year ahead.