Santoli’s Tuesday market notes: CPI surprise doesn’t quell ‘temporary or lasting’ inflation debate

Published Tue, Jul 13 20211:31 PM EDT

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics. Hot inflation report cools the reflation trade further, rekindles tapering/tightening concerns and flattens the yield curve – all of which heighten the market's reliance on the biggest, growthiest companies on the board for another day. The unexpected rise in June CPI, both core and headline measures, doesn't settle the "transitory" vs. "lasting" above-trend inflation debate. It's mostly consistent with a passing phase of elevated inflation – again used-car prices and direct reopening effects, such as hotel and car-rental rates, account for most of the upside in the core gauge. But still some persistence in price increases elsewhere and in any case it's another month later. And the market fears that some Fed voters – regional Fed bank presidents, mainly – will push to react to the data by trying to pull forward the taper/tighten plan. Right or not, this is the way bonds are taking it, assuming an earlier first hike which means more muted longer-term growth and inflation. Fed Chair Powell will most likely push back against the hawkish interpretation in Congress this week, so be ready for whipsaws in bonds, style shifts in equities. Equity-wise, it drives money directly at mega-cap growth – again, right or not, this is how the machines are programmed to play it. Stark divergences in the intraday action so far among S & P 500 , Nasdaq 100 , equal-weight S & P 500 and Russell 2000 : Dramatically poor market breadth today. There are about 4,600 stocks down and 2,000 up across NYSE and Nasdaq, with the S & P slightly positive. Ratio of small-to-large and the median stock to the headline index near YTD lows. This shows both the power of the rotational impulse to provide broad resilience to the tape at the same time it means a less generous, heavier market. Poor breadth doesn't always sabotage index rallies and these splits can last for many months, but typically leads to some tougher AAPL , MSFT and AMZN together kicking in a full percent of positive gross contribution to S & P 500, the other 497 stocks down almost as much collectively. Yield-curve smush is overcoming good bank results, particularly by GS , though both it and JPM remain down about 1% this month. The favorable trends behind banks are pretty well known, leaving the marginal move in the stocks dependent on real-time net-interest margin and trading dynamics. Bank of America fund manager survey shows pros still carrying overweights in financials. Credit market is steady, not showing any incremental stress. VIX sleepy, a big known catalyst now past in the CPI. No real signal. In the moment, sharp divergences within the market suppresses index volatility, but if it gets stretched too tight, we might seem an anxiety bid develop in downside protection. Not much of one yet.

Traders on the floor of the New York Stock Exchange.

Source: NYSE

This is the daily notebook of Mike Santoli, CNBC's senior markets commentator, with ideas about trends, stocks and market statistics.

Hot inflation report cools the reflation trade further, rekindles tapering/tightening concerns and flattens the yield curve – all of which heighten the market's reliance on the biggest, growthiest companies on the board for another day.