Stocks Stutter As Inflation Surprises

Today’s consumer price index showed inflation rose more than expected in January. 📝

Headline inflation rose by 0.5% MoM and 6.4% YoY (vs. the 0.4% and 6.2% expected). Stripping out food and energy, core CPI rose 0.4% MoM and 5.6% YoY (0.1% higher than expected). 🔺

Driving those increases were two things. ✌️

First, energy prices rose 2% MoM, and food prices rose 0.5% MoM. Those numbers are typically volatile and not something the Fed is too focused on. Within the core CPI number, rising shelter costs contributed a good portion of the gain…but those numbers involve a significant lag. ⏲️

As a result, many market participants and the Fed are looking at “super-core” inflation, which takes out shelter prices. That value rose just 0.2% MoM and 4% YoY. The argument is that this way of looking at inflation is a lot more reflective of the prices the Fed can directly impact through its policy. And for now, those are headed in the right direction.

That’s likely why the stock market’s initial reaction was to sell off. Meanwhile, the bond market is no longer pricing in any rate cuts in 2023. Instead, it sees a terminal rate between 5% and 5.25%, where it’s likely to stay until more progress is made on inflation.

Overall, the stock market continues to err on the side of optimism. Leading today’s gainers was the tech-heavy Nasdaq index. 👍

Now we wait to see if the producer price index on Thursday indicates a similar trend. ⌚

Airbnb reported better-than-expected fourth-quarter earnings after the bell.

The company’s earnings per share of $0.48 and revenue of $1.90 billion topped their $0.25 and $1.86 billion estimates. Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $506 million also beat the $432 consensus estimate. 📈

Other relevant stats included:

• Gross booking value of $13.5 billion
• Nights and experiences booked of 88.2 million (+20% YoY)
• Average daily rates of $153 (-1% YoY)
• Active listings of 6.6 million (+16% YoY)

Driving the results was strong demand from consumers and cost-cutting efforts taken by management during the pandemic. Executives are encouraged by the market share gains in Latin America and continued recovery within Asia Pacific. Overall, they say both short and long-distance travelers are returning to major cities, which should be a major tailwind for the company’s results. ✈️

As a result of the company’s positive outlook, its first-quarter revenue forecast of $1.75 billion to $1.82 billion also came in higher than expected.

$ABNB shares were up roughly 9% after the bell, adding to their 4% regular session gains. 👍

It’s widely expected that U.S. President Joe Biden will name Federal Reserve Vice Chair Lael Brainard to the White House’s top economic policy position this week. 📝

She will replace White House National Economic Council (NEC) Director Brian Deese, who recently resigned. Additionally, Jared Bernstein will likely replace Cecilia Rouse as chair of the Council of Economic Advisers. And many expect the Labor Department’s chief economist, Joelle Gamble, to be made a deputy NEC director.

In her new position, Brainard will advise Biden on policy and personnel decisions and coordinate policy-making across executive branch agencies. Many speculate her long career in government could set her up to take Janet Yellen’s place as Treasury Secretary if Democrats win reelection in 2024. 🗳️

As a member of the Federal Open Market Committee (FOMC), Brainard recently presented her colleagues with a marginally less aggressive monetary policy case. Her concerns are that if the Fed overtightened in its fight against inflation, it could lead to economic difficulties on the back end of that policy decision. She’s also known for consistently opposing various measures to ease financial regulations between 2018 and 2020.

Despite the position being all but officially confirmed, the market’s response was muted. This could suggest people are not rushing to speculate on what this means for future economic policy. There are bigger fish to fry at the moment. 🤷

While we’re on the subject of government officials, there were two more announcements today. 📰

First is that the last remaining Republican FTC Commissioner, Christine Wilson, resigned from her post. She stated that Democratic Chair Lina Khan’s “disregard for the rule of law and due process.” was her primary reason. The vacancy means President Biden can nominate two commissioners, though neither can be a Democrat.

Secondly, California Democratic senator Dianne Feinstein says she will retire at the end of her current term. That opens the door for representatives Adam Schiff and Katie Porter, California Democrats, to fight for her seat. At 89, Feinstein is the oldest sitting U.S. senator and longest-serving California senator. ⚔️