 | 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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Market volatility remained high this last week. What asset classes can we look to for growth in the near-term?
Monday S&P 500 1.69% | NASDAQ 2.18%
Markets opened in the red and the sell-off deepened as the day progressed. Yields surged on Monday leading markets lower as anticipation grows over inflationary data due out Tuesday. Higher yields have a larger effect on growth stocks, which was evident by the heavier losses on the NASDAQ.
Tuesday S&P 500 0.34% | NASDAQ 0.30%
Headline Consumer Price Index (CPI) came out at 8.5% (inflation). This higher reading should have led markets lower, but instead the S&P 500 was up as much as 1.5% early. Those numbers faded to the red late in the day as more negativity is anticipated as earnings season gets underway. Core CPI (which strips out fuel and food) grew less than expected and may have played into the early rally.
Wednesday S&P 500 1.12% | NASDAQ 2.03%
Consumer Discretionary, Technology, and Materials all surged on the day. This flies in the face of recessionary fears. This signals a strong consumer in the near term as earnings season gets underway. Interestingly, consumer behavior has directly contradicted consumer sentiment. We are at multiple year lows on sentiment; however, actual consumption remains strong.
Thursday S&P 500 1.21% | NASDAQ 2.14%
Markets opened in the green and quickly retreated into the red. This marks the last day of trading for the week as Good Friday is a market holiday. The move lower was led by growth stocks as the rally in bond yields resumed leadership on the day. The growth heavy NASDAQ nearly doubled the losses of the broader S&P 500. The sell sentiment almost felt as though investors did not want to hold shares into the long weekend.
Friday S&P 500 X.XX% | NASDAQ X.XX%
Markets were closed in observance of Good Friday.
Conclusion S&P 500 2.16% | NASDAQ 2.64%
Interest rates, interest rates, interest rates… That was the story for the majority of the week. We have a pretty clear view of the road ahead:
- GDP is growing at a clip above 5%
- Persistent inflation, though softening core levels
- Better than expected corporate earnings
The picture over the next year provides reasons to be optimistic. Asset classes that provide a hedge against rising rates and companies that carry little leverage appear to be poised to win the day.
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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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If you would like to receive this weekly article and other timely information follow us, here.
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.