As more and more economic news arrives, the market struggles to hold its own

Despite Wednesday’s headlines about the highest CPI numbers in nearly 40 years, the market digested the news well. Stocks were mixed with some lingering pockets of weakness in underperforming groups such as biotechnology and growth, but the indices were flat and the magnitude was close to even.

On Thursday morning there will be another reading on inflation when the PPI report is released. This measures inflation at the wholesale and commodity level and will also be at its highest level in several decades. The market knows this is coming, but there is always the danger that the stock could generate a response regardless.

Also, the weekly unemployment figures will be released and are expected to be around a muted 200,000. The biggest problem that many companies are currently facing is absenteeism caused by the Omicron variant. The job market is in disarray, and it won’t normalize until Omicron peaks and begins to decline.

So far, relatively little has been said about Omicron’s economic impact, as the focus has been on interest rates and the vicious spin action created by a more hawkish Fed. As earnings reports begin rolling in over the coming weeks, we’ll learn more about Omicron’s impact on individual companies.

Banks will kick off the fourth quarter earnings season on Friday, with reports from Citibank (C), Wells Fargo (WFC) and JPMorgan Chase (JPM). The following week there will be dozens of reports, mostly from larger cap names.

Despite Wednesday’s rather flat action, the market mood is austere and there is strong concern that inflation concerns will trigger another wave of selling. The Fed’s shift to a hawkish bias is not trivial, and it makes sense that it will take longer than a week or two for the market to adjust.

Many market participants fear more spin stocks and are in no rush to put capital to work. To add to the difficulty, there continues to be a huge performance gap between the stocks and sectors that peaked in February and the large caps and indices that just peaked in the last few weeks. It will take some time before this performance gap begins to close significantly.

We have a quiet open pending economic news.

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