The December Producer Price Index (PPI) revealed a 2.9% year-over-year increase, below economists’ expectations of 3.5%, and a monthly rise of 0.2%, well under the anticipated 0.4%. Core CPI, which excludes food and energy, increased 3.2% annually and decreased from .3% in November to .2% in December, defying projections of a 0.3% gain. Energy fuel costs rose 4.4% and was by far the largest contributor to inflation for December due to rising oil and gas prices.

Producer prices have surged 26% since 2020—three times faster than the 8% increase seen in the five years preceding the pandemic. Certain components of the PPI have climbed even more dramatically. Prices in trade services and total manufacturing industries have jumped 32% over the past five years, while transportation and warehousing prices have risen 29% over the same period. But, things are beginning to calm down and the market celebrated in response.

‍

Markets Rally, Breaking Weekly Losing Streak

U.S. markets rebounded sharply this week, ending a prolonged losing streak. The S&P 500 rose 2.9%, while the Nasdaq 100 surged 2.5%, and the Dow Jones gained 3.9% (334 points). Tech stocks, led by Tesla (+11%), Nvidia (+6%), and Microsoft (+3.4%), fueled the rally alongside strong performances in consumer discretionary stocks like Amazon.  Optimism was driven by easing inflationary pressures from December’s PPI and CPI reports, coupled with robust earnings in the banking sector from Citi, Morgan Stanley, and Wells Fargo.

Fed Outlook: Cautious Optimism

Despite the encouraging data, inflation remains above the Federal Reserve's 2% target. Analysts now expect the Fed to maintain rates at its upcoming meeting, with markets pricing in only a 3% chance of a rate cut in January. Longer-term projections show a higher likelihood of cuts starting mid-year. While the labor market’s strength and persistent inflationary pressures in certain sectors complicate the outlook, the moderation in PPI and CPI data supports a “wait-and-see” approach, giving policymakers more time to assess the broader economic trajectory.

‍

‍

‍

Real Estate Stocks Plummet, Healthcare Shows Promise

Last week, the S&P 500 sectors showed strong gains across the board, with Financials (+6.1%), Energy (+6.1%), and Materials (+6.0%) leading the charge. Industrials (+4.8%) and Real Estate (+4.8%) also posted significant increases, while Utilities (+4.3%) and Consumer Discretionary (+4.0%) performed well. Modest gains were seen in Information Technology (+1.6%), Consumer Staples (+1.3%), Telecom (+1.3%), and Healthcare (+0.3%), reflecting broad sector-wide strength.

Homebuilder and regional bank stocks rallied over 8% last week on rate cut hopes, while retail, airline, and clean energy industries fell. Oil drillers and insurance stocks also rallied 5 percent.

Among commodities, oil prices pulled back a bit Friday after rising 11% over the past month. Natural gas followed suit, falling 7% after a 17% monthly run driven by colder weather. Gas flows to US LNG export facilities have hit a record daily high, further boosting demand.

‍