The Producer Price Index (PPI) was released before the market open on Tuesday and showed that inflation at the wholesale level grew faster than expected at 0.8% in November. Additionally, the PPI grew 9.6% from last November which is above the expected 9.2% and is, well, just ugly. At this point, we can probably say that the transitory inflation theory has pretty much been blown out of the water.
S&P 500 futures (/ES) was already trading lower before the PPI report and dropped further after the report. This selloff adds to Monday’s late-day selloff adding to the degree of uncertainty investors are feeling. The Cboe Volatility Index (VIX) rose 6% before the open reflecting rising fears.
Yields remain relatively flat on the news, ticking slightly higher than dropping again. Normally, we hear “buy the rumor and sell the news”; it could be interesting to see how investors react to the Fed’s announcement tomorrow. Perhaps we’ll see “sell the rumor and buy the news”.
The uncertainty is standing in the way of Apple (AAPL) making history by reaching a $3 trillion market cap. The stock fell 2% yesterday but was trading slightly higher in premarket trading. Unfortunately, the stock turned negative with S&P 500 futures after the PPI report.
The 10-year Treasury yield (TNX) fell more than 4% on Monday. This move may reflect an expectation from investors that the Fed will accelerate its plans to taper off bond buying. But it could also reflect the defensiveness seen in stock buying, which means investors could be looking for safer havens like bonds.
Loss of Appetite
Cryptos aren’t the only popular pandemic trades that are seeing a lot of volatility. Meme stocks like GameStop (NYSE:GME) and AMC (NYSE:AMC) are down about 3% and 6% respectively in premarket trading after falling 14% and 15% yesterday.
While these are some of the more extreme examples, even the Russell 2000 (RUT) small-cap index has dropped more than 4% in the last three days and is down nearly 11% from its November high. Instead, investors appear to be opting for steadier stocks like those in the S&P 500 which is about 1% from its all-time high.
Stacking the Box
Sickness and injury happen no matter what the economy is doing. And, of course, people always need a place to live with running water and electricity.
Bend; Don’t Break: Some investors mistakenly believe that defensive stocks go up when the stock market goes down. Sadly, this isn’t true. Historically, that’s been the case for stocks and bonds but not for defensive stocks. Instead, defensive stocks tend to be less volatile, which means they tend to fall less than most stocks and rise less than most stocks.
Beta You Than Me: One-way investors measure the volatility of a stock is through its beta. Beta measures a stock’s volatility in relationship with the S&P 500. A stock with a beta of 1 will tend to be about as volatile as the index. A beta less than 1 tends to be less volatile than the index, whereas a stock with a beta of greater than 1 tends to be more volatile.
According to research by Yardeni, the S&P 500 Index has an average forward P/E of 20.5. The consumer discretionary stocks in the index have the highest forward P/E of 31.1, followed by technology at 26.9. The lowest sectors are energy at 10.5 and financials at 14.1. The defensive sectors have forward P/E ratios of 16.2 for health care, 18.9 for utilities, and 19.9 for consumer staples. (The report didn’t cover real estate.)
The forward P/E ratios for these defensive stocks are relatively high compared to other sectors, which means that while they are part of the defensive group, there aren’t necessarily the best value stocks in the index. At the same time, they do have lower valuations than the S&P 500, which likely reflects the betas you might find in these sectors.
TD Ameritrade® commentary for educational purposes only. Member SIPC.
Image Sourced from Pixabay
© 2026 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
To add Benzinga News as your preferred source on Google, click here.
