U.S. Stocks: Does Weak Inflation Portend Recession?

U.S. stocks finished broadly higher Tuesday, though a crisis-hit Boeing Co (BA) weighed on the Dow following another deadly 737 airline crash. Meanwhile, a weaker than expected inflation report from the Department of Labor sparked fresh fears that the U.S. economy was losing momentum.

S&P 500, Nasdaq Rise but Dow Lags Behind

The broad S&P 500 Index of large-cap stocks rose 0.3% to close at 2,791.52. The index came within two points of 2,800, a level that has offered significant resistance stretching all the way back to October. The troubling trend was covered in a February article: Does this Chart Spell Doom for the S&P 500 Index?

Among the S&P 500’s 11 main sectors, nine reported gains. Health care led the advance, climbing 0.8%. Shares of communication services and information technology companies also outperformed the market.

The technology-focused Nasdaq Composite Index rose 0.4% to close at 7,591.03.

The Dow Jones Industrial Average underperformed its peers after shares of Boeing Co (BA), its largest component by weight, continued to decline. The Dow fell 96.22 points, or 0.4%, to 25,554.66.

Boeing Crisis Deepens

The European Union has followed in China and Indonesia’s footsteps by grounding all 737 Boeing MAX jetliners in the wake of a second deadly crash in five months. According to CNBC, more than two-dozen airlines have grounded Boeing 737 flights, triggering mass flight cancellations around the world.

Aviation regulators have apparently halted 737 flights without consulting with the U.S. Federal Aviation Authority (FAA). Under usual circumstances, regulators consult with the issuing agency before deciding to halt aircraft. As Boeing noted, the FAA has not decided to ground planes nor has it advised other countries to do so.

A total of 350 Boeing 737 MAX 8 jets have been delivered through January. Boeing still has orders for roughly 5,000 more. The crisis has shaken confidence in the aerospace company, whose shares sold off more than 6% on Tuesday. Boeing’s share price was down as much as 13.5% on Monday.

Inflation Points to Weakening Economy

U.S. consumer prices rose in February for the first time in four months, but annual inflation grew at its slowest pace in almost two-and-a-half years. The core consumer price index (CPI), which strips away volatile goods such as food and energy, also appears to have peaked, a sign of slowing demand for the world’s largest economy.

February CPI rose 0.2% from a month earlier and 1.5% annually, the Labor Department reported Tuesday. The annual reading came in below forecasts, which called for 1.6%. Core CPI rose 0.1% on month and 2.1% annually, missing estimates for both periods.

Inflation is weakening at a time when the U.S. Treasury yield curve is teetering on the brink of inversion. Bond-yield inversion usually points to an economic downturn – at least, that’s the historic track record stretching all the way back to World War II. Against this backdrop, it may be erroneous to view the latest inflation report in isolation but as part of a more worrying trend below the surface.

Although the Federal Reserve targets inflation at 2% annually, it relies on the core personal consumption expenditure (PCE) index to gauge cost pressure. The latest reading of the core PCE index was 1.9%. It peaked at 2% last year.

Featured image courtesy of Shutterstock.

Chief Editor to Hacked.com and Contributor to CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi