BofA head suggests ‘keep some dry powder’ as better buying opportunities ahead

Producer Price Inflation (PPI) came mostly in line with market expectations, increasing only 0.5% month-on-month. Yet, the year-over-year wholesale prices came in higher than expected at 11% as compared to the expected 10.7%. 

Speaking with CNBC’s Squawk Box, Jared Woodard, head of Bank of America (NYSE: BAC) head of ETF strategy, Mike Santoli, CNBC’s Senior Market Commentator, and Dana Peterson, Executive VP at the Conference Board discussed the implication of PPI numbers on the market. 

It seems that the proverbial ‘pig is making its way through the snake’, indicating that the high mark of inflation is reached to which Ms. Peterson commented: 

“I think it is good news if we have seen the high watermark. And really, we do need the Fed to step in, and raise interest rates but not be too aggressive, such that it causes a recession, because we think the fed does not necessarily want to undo all the good work it has done in terms of achieving full employment.”

Meanwhile, Woodard highlighted that consumer and producer statistics this week show some very tiny peaks, but prices are still increasing. While this may be considered good news if they’re not growing as swiftly as they were, the fact that prices are still climbing so quickly is problematic for markets.

“We’ve been suggesting that investors maintain higher level of cash, more dry powder ahead of volatility and what we think will be much better buying opportunity later this year.”

Caution in the markets warranted   

Based on the PPI numbers coming in and inflation rising being cautious in the markets could prevent losses in the near term for traders. Recent lockdowns in China don’t seem to be fully priced in as market participants see it as transitory as evidenced by commodity specialists commenting on the state of oil markets.  

Whether inflation has peaked is yet to be seen, if so markets could rebound from the lows when numbers start improving. Remaining vigilant though seems to be the best approach as uncertainty appears to be lingering around all markets. 

In the present market environment, investors who choose not to liquidate their holdings and instead choose to ride out the short-term volatility may find that they are rewarded for their patience. A relief rally may be only one good report away.

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