Investors on Inflation: What, Me Worry? Stocks Soar in Broad Rally

Today’s resurgence in stocks reminds me of a Monty Python sketch, in which a Medieval family tries to toss a sick member onto a cart of corpses for disposal. The old man protests, yelling: “I’m not dead yet!”

This bull market isn’t dead yet. The main indices sharply rose Thursday for their fifth consecutive winning day.

The market took serious hits in recent weeks. The nine-year bull run may be over. But it looked lively today.

To be sure, it would only take a whiff of bad news to send markets reeling again. But for now, investors are dismissing inflation worries. They’re intent on buying quality stocks that were beaten down during this month’s declines. The Dow Jones Industrial Average regained the 25,000 level for the first time in two weeks.

Crucial economic reports are on the docket for Friday. Like ancient oracles, investors will study the entrails, looking for portents of inflation.

The key data to watch tomorrow: housing starts, consumer sentiment, e-commerce retail sales, import and export prices, and the Baker Hughes rig count.

The U.S. Labor Department reported today that the number of Americans filing for jobless benefits rebounded last week from a near 45-year low. But the numbers point to a tight labor market. That puts upward pressure on wages.

Initial claims for state unemployment benefits increased 7,000 to 230,000 for the week ended Feb. 10, the government said on Thursday. Claims for the prior week were revised to show 2,000 more applications received than previously reported. The data was in line with expectations.

Last week marked the 154th straight week that claims stayed below the threshold of 300,000. The labor market is flexing its muscles.

The Federal Reserve reported on Thursday that U.S. industrial production fell 0.1% in January, versus an expected increase of 0.2%. U.S. factory output in January was flat for the second straight month. The data was comforting to those who fear an overheated economy.

Inflation heats up…

The jobless rate stands at 4.1%, a 17-year low. Workers who had dropped out of the labor market are looking for jobs. Economists say the U.S. is near full employment. That means firms must compete for workers by paying them more. That’s inflationary.

There’s one trend worth cheering: wages are rising fastest at the bottom of the ladder. Blue collar workers who have been shut out of America’s prosperity are starting to see fatter pay envelopes. It’s also encouraging that wage growth is occurring across a wide swath of industries.

But what about those frightening market gyrations earlier this month? Context is called for. Sure, the 1,175-point plunge in the Dow on February 5 was the biggest ever in absolute terms. But proportionately, the fall only amounted to 4.6%. In October 1987, the 508-point drop in the Dow amounted to 23% of the market. The bear market of 1973-1974 knocked 45% off the Dow.

Make no mistake, though: inflation is getting warmer. Price growth threatens stocks.

In 2017, the U.S economy grew by 2.5%, above the 2% considered sustainable. The Atlanta Federal Reserve estimates that annualized U.S. gross domestic product growth will come in at 4% in the first quarter of 2018. That’s a torrid pace.

In addition to tax cuts and deficit spending, health care and energy costs are rising. Applying stimulus during the late stage of an economic recovery is risky. We’ll see how it pans out.

Enjoy today’s gains. But stay on your toes. Stick to quality.

Thursday Market Wrap

  • DJIA: +1.23% or +306.88 points to close at 25,200.37
  • S&P 500: +1.21% or +32.57 points to close at 2,731.20
  • Nasdaq: +1.58% or +112.81 points to close at 7,256.43

Thursday’s Big Gainers

  • Build-A-Bear Workshop (NYSE: BBW) +16.67%

Retailer for kids posts stellar operating results.

  • Aaron’s (NYSE: AAN) +8.36%

Furniture retailer beats on earnings.

  • Teva Pharmaceutical (NYSE: TEVA) +7.60%

Warren Buffett makes big investment in biotech firm.

Thursday’s Big Decliners

  • Textainer Group Holdings (NYSE: TGH) -17.94%

Analysts bearish on intermodal transport firm.

  • CAI International (NYSE: CAI) -16.77%

Transport firm’s earnings disappoint.

  • TreeHouse Foods (NYSE: THS) -13.09%

Consumer foods purveyor reports weak earnings.

Letters to the Editor

What’s your view of cyber security stocks?” —  Nathan G.

Major companies in cyber security are tapped into unstoppable momentum. Hacking has reached epidemic proportions. Hackers have breached government agencies and heavily trafficked sites. They’ve posted customers’ sensitive information — including user names, passwords, e-mail addresses and device IDs — on the Internet for the world to see.

In testimony on Capitol Hill this week, the U.S. intelligence community was unanimous in its findings: Russia meddled in the 2016 presidential election. Russian President Vladimir Putin and his minions disseminated “fake news” and deployed an army of Internet trolls and bots. Heads of the FBI, CIA and NSA told lawmakers that Putin is now eyeing the U.S. midterm elections. He intends to wreak havoc again. Think of it as Cold War II.

According to recent studies, information theft accounts for roughly 50% of corporate external costs on an annualized basis. That will fuel demand for the products and services of companies in the cyber security sector.

Questions about cyber security opportunities? Shoot me an email:

John Persinos is managing editor of Personal Finance and chief investment strategist of Breakthrough Tech Profits.



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