Let's get to the big story.
Breakdown.
While in New York morning trade, we are looking at market reaction on the heels of that CPI figure, and we are looking at the tech-led rally taking a breather this morning.
But this does come on the heels of an AI rally with chip stocks like Nvidia and Intel leading the charge after another massive run.
But beneath the tech euphoria we are seeing some macro warning signs, and oil does continue to surge, and this does remain the case as the Strait of Hormuz remains.
Effectively closed with President Trump heading to Beijing.
Kevin Warsh taking over the Fed and a high stakes inflation report dropping this morning.
It is a pivotal moment for investors.
And joining me live here at the New York Stock Exchange is Michael Reinking, Senior Market Strategist at the New York Stock Exchange.
Michael, good morning.
Thank you so much for joining us.
Good morning for having me and welcome back.
Thank you so much.
Well, we are looking at the market reaction on the heels of that consumer price inflation figures, and it does appear as though when we're looking at the CPI figures, it's not just energy behind that inflation, is it?
No.
So I mean we did see energy and food move higher, which was kind of pretty well expected.
The numbers came in a touch high, I think within the report, I think the one somewhat surprising number was the increase in the shelter component, but people have kind of pointed to the fact that that relates back to data collection issues during the government shutdown, so it wasn't necessarily out of left field, right?
And so you Saw that increase from 0.3% to 0.6%.
That's a pretty big component within kind of the core number, right?
So I think that's why markets have kind of largely taken kind of the number in stride where we're seeing yields have actually pulled back a tiny bit from overnight highs and futures, which were lower coming into the data this morning, have kind of also kind of moved off of the lows.
You know, we're down 0.25%, and we also did get that jobs report last Friday.
We got ADP weekly change.
So given what we're seeing in labor market data, where do we actually stand and what does this mean for the Fed for the rest of 2026?
Yes, so look, I mean, you know, at this point everything kind of we're seeing kind of suggests that the Fed is on, is on hold, right?
And you know we're waiting to get confirmation of Kevin Warsh, which is expected on Wednesday, a final vote to kind of put him into place.
But you know at this point, right, with where The inflation situation is with energy prices kind of remaining high, you know, the Federal Reserve is not in a place to really be cutting, and we're also seeing some resilience kind of within the labor market as well.
We've seen back to back months of pretty solid numbers, over 100,000 jobs added to the economy.
That's at a time when people have suggested that kind of the break-even rate for the economy given. you know, kind of the The recent shift in dynamics around border controls is somewhere around 25,000 to 50,000 jobs.
So we are adding jobs to the economy.
The one thing you would look at on the flip side of that is we have started to see kind of a pick up in layoff announcements, particularly within the labor market, I mean within the technology of area of the market.
Now there are some questions in and around how much of that is purely kind of driven by AI productivity.
A lot of companies are pointing to that, but there's also this belief that a lot of these companies were overstaffed over the last couple of years, and so you're seeing a little bit of a right sizing of headcount and kind of AI washing is the term that people have tied to some of that.
But you know at this point from a Federal Reserve perspective they're on hold.
Markets expect them to be on hold.
You know, if we really start to see an acceleration in the inflation data, right, and you know and things remain elevated for kind of a more extended period of time, then maybe you start to talk about hikes again.
Yes, and of course we have to address the rally that we've been seeing here on Wall Street.
Street of course record highs for the S&P 500 and we do have to talk about what we're seeing in terms of leaders versus laggards in the S&P 500 year to date versus I would say a month or a month and a half since the end of March 30th.
So what's going on below the surge?
Yes, so look, I mean we've had this pretty historic rally kind of since the end of Q1, right?
And you traders have had to be really flexible, right?
Think about where we were kind of heading into the end of the quarter, right?
You had seen a lot of kind of a lot of de-risking that was happening within the market, and then we've had this kind of astronomical parabolic like move to the upside, particularly in kind of the AI related kind of areas of the market that comes on the back of a very, very strong earnings season, right?
So coming in.
To the quarter, analysts were looking for S&P 500 earnings to be up around 13% on a year to year basis, as we're kind of in the tail ends of the quarter of the reporting season now, we're tracking up over 25%, so 2x from where analysts were looking for coming in.
A lot of that is very much happening within the. sector semiconductors, anything that is kind of exposed to the data center Capex boom that is kind of happening across the country, all the components that are associated with that that's where a lot of the strength is.
But actually if you look more broadly, the earnings picture has been very solid.
There's a little bit of a gap where in a lot of other areas of the market you're seeing companies. beat the numbers but not necessarily raise guidance that builds on a little bit of conservatism just given the uncertainty in the environment, right?
But we're the clear leadership is within technology, right, and it's clearly kind of semiconductors and memory stocks which have gone kind of parabolic over the last couple of weeks.
So we're going to need to see that kind of.
Calm down a little bit, right?
I think things are getting pretty stretched from a technical perspective, you know, in in those moves, and you need to see that you'd like to see that just kind of calm down and do a little consolidation as opposed to kind of continuing to move higher because that kind of tends to lead to kind of blow off tops and you know some more weakness on the back end.
Yes, and building on what you just said, I'm going to Try and squeeze two questions into one.
So this week we're paying attention to geopolitics, of course, with Trump's visit to China as well as the ongoing conflict in the Middle East.
So what does this all mean when it comes to your targets for the S&P?
Yes, so look, I mean, the longer this continues, right, the bigger the impact that the kind of higher energy costs are going to have, right?
I think that this week's meetings in China are going to play a key role in kind of the potential outcome of what happens here.
I think both sides go in kind of holding some cards and we'll see how that resolves itself.
The sequencing of events is that if we continue to see these prices continue to move higher, you're going to start to see an impact on consumer spending.
So my take coming into this week was that Thursday's retail sales numbers are probably the most impactful piece of economic data this week as opposed to the inflation data because everybody kind of widely expects that to move higher.
So we would like to see that continued kind of resilience in.
Kind of spending, you know, but if you look at just the outside of what's happening in the geopolitical environment, the backdrop for kind of markets is pretty positive, which we kind of talked about kind of heading into this year.
We've seen a little bit of that acceleration in economic activity.
How much of that is a pull forward given what's happening is still yet to be seen, but if we can kind of get out of, you know, or kind of see a de-escalation here without with no kinetic escalation and we start to see oil prices kind of start to moderate, you have a very, very positive backdrop for markets.
Well, Michael, a lot to keep our eyes on as we head into the rest of the week.
So thank you so much for joining us and thank you so much for all of your insights.
Thank you.
