 | AUTHOR: Jason Roque, CFP®, APMA®, AWMA® TITLE: Investment Adviser Rep – CCO TAGS: S&P 500, NASDAQ, Small Business, CPI, FRB Minutes, PPI, Jobs, Earnings |
The week was all about inflation data, but have we inflated its importance?
Monday S&P 500 0.04% | NASDAQ 0.03%
Markets were little changed on the day. There was very little economic news out before the bell on Monday. The week will likely be sharply focused on Wednesday when we get the updated figures for March inflation. The report is expected to show an increase from February.
Tuesday S&P 500 0.14% | NASDAQ 0.32%
Small business sentiment slipped in March to the lowest level since January 2013! Even still, markets advanced ahead of inflation data on Wednesday. Growth stocks out-performed which signals that an increase of inflation data would likely not hamper growth stock leadership. This is important because the rate cuts expected later this year would favor growth stocks most.
Wednesday S&P 500 0.95% | NASDAQ 0.84%
Consumer Price Index (CPI) information showed that inflation has stopped cooling. A 0.1% reading was replaced with a 0.4% reading. The main culprits were transportation services, energy, and home services. The markets moved sharply lower, but likely on the Federal Reserve Board (FRB) minutes release, rather than on CPI data. FRB Minutes showed concerns that inflation was stagnating, endangering the likelihood of the FRB cutting rates later this year.
Thursday S&P 500 0.74% | NASDAQ 1.68%
Producer Price Index (PPI), which is a proxy for wholesale inflation rose less than expected. Initial jobless claims fell on the day supporting a strong job market. The weaker than expected inflation data led to a bounce back rally by markets. Little was changed about rate cut expectations moving forward however, given the FRB minutes from March.
Friday S&P 500 1.46% | NASDAQ 1.62%
Michigan Consumer Sentiment is projected to slip, but remains in the high 70’s. Financial firms got earnings season underway on Friday and they did not impress. The slide on Friday solidified a down week for equities. The Nasdaq led markets lower on the day, but its Thursday rebound mitigated losses for the week.
Conclusion S&P 500 1.56% | NASDAQ 0.45%
The week ended well into the red. The fall represented the worst week for the S&P 500 since January. In January the focus was on the markets accepting that the FRB may only cut rates three times this year. This time it is on the realization that perhaps the FRB may not cut rates at all. As of now investor expectations are that the FRB will cut rates one, maybe two times (September and December). The meeting in two weeks should provide more clarity. Even with this change to rate cut expectations, it will be interesting to see what action the FRB takes with Quantitative Tightening. If they do start to slow the selling bonds that should provide some relief.
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Docile week as markets reflected marginal losses? No, not at all… What really happened throughout the week?
Monday
Markets dug a large hole to start the week but worked its way out by market close. The bleeding ended up being minor, with the S&P 500 losing 0.1%. The move came as major bank analysts continue to report a hawkish Federal Reserve Bank (FRB) for 2022. They are not only likely raising rates but attempting to reduce their balance sheet during the 4th quarter.
Tuesday
The S&P 500 rose 0.9% and the Nasdaq rose 1.4%. This came after an early drop in markets. The initial risk-off environment was fostered by testimony from FRB chair Powell in the morning. That testimony ultimately confirmed thoughts for investors that the trajectory for rates in coming months will be on the rise.
Wednesday
Consumer Price index (CPI) data out on Tuesday showed a 0.6% increase for the month of December. That monthly reading led to a 7.0% YoY reading. The S&P 500 rose 0.28%. While the YoY number rose, the monthly increase was down from the last two months.
Thursday
The day started in the green and faded hard into the red. The S&P 500 ended up losing 1.42% on the day. FRB officials spoke publicly on Thursday about the Banks intent to start raising rates as early as March. The FRB will do this often in an effort to telegraph their actions. By doing so, they prevent a much broader sell off at the time of the increase.
Friday
Markets floated just under water for the majority of the day. Retail sales missed expectations by a wide margin. Additionally, preliminary readings for consumer sentiment show the metric falling into the 60’s. Outside of the pandemic, we haven’t seen sentiment in the 60’s since 2011. Coincidently, that was the last time we saw inflation above 2%. The S&P ended up pulling into the green for the day ending at a 0.08% rise.
Conclusion
The S&P 500 did lose 0.3% for the week. This comes across as a fairly mild week when taken in total, however intra-week volatility absolutely told another story. The increase in recent volatility is not surprising given the interest rate forecasts for 2022; however, I should remind people that the docile nature of 2021 is not the norm.
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Your interest in our articles helps us reach more people. To show your appreciation for this post, please “like” the article on one of the links below:
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Always remember that while this is a week in review, this does not trigger or relate to trading activity on your account with Financial Future Services. Broad diversification across several asset classes with a long-term holding strategy is the best strategy in any market environment.
Any and all third-party posts or responses to this blog do not reflect the views of the firm and have not been reviewed by the firm for completeness or accuracy.