Signs of Hope? | May 6, 2022 | FFS| Monument, CO

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.

~ Your Future… Our Services… Together! ~

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:

Facebook | Twitter | LinkedIn

FOR MORE INFORMATION:

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.

Another down week led by the NASDAQ. Are there signs of hope in the long term forecast though?

Monday S&P 500 0.57% | NASDAQ 1.63%

Equity markets were in no mood to be boring on Monday. The markets opened choppy, oscillating between green and red. At one point, the 10-year treasury got above 3%, sending equity markets decidedly lower. At another point, the S&P 500 was 1.67% lower on the day. Late in the day, with one hour of trading left, markets rallied back to end in the green.

Tuesday S&P 500 0.48% | NASDAQ 0.22%

The growth story stayed relatively contained on Tuesday as the Federal Reserve Board (FRB) press conference is on Wednesday. Every time the markets tried to break out, they clawed back down. The 10-year treasury rate floated lower early and closed nearly unchanged.

Wednesday S&P 500 2.99% | NASDAQ 3.19%

The FRB delivered what the markets were expecting. They lifted the Fed Funds Rate by 0.50% and committed to rolling off their balance sheet starting June 1^st. The commitment will eventually get to $95B, however that won’t be until September. The S&P 500 traded sideways until the data from the FRB was available, after which markets soared into the close. The 10-year treasury was little changed, indicating that the FRB hike was baked in already.

Thursday S&P 500 3.56% | NASDAQ 4.99%

The entire week of positivity was reversed in one broad selloff. The S&P 500 is currently off 13.54% and the Tech heavy NASDAQ is currently off 22.20%. The broad market move says that while the FRB was less fierce than expected, they are being aggressive with policy. That aspect does not change the expected decrease in revenue for US companies.

Friday S&P 500 0.62% | NASDAQ 1.45%

Happy Jobs Day! Jobs data held strong as the unemployment rate remained at 3.6% and the US added over 400K jobs in April. The participation rate is holding at 62.2%. Additionally, wage growth increased 5.5% annually. This rate keeps pace with Core PCE (a key indication of inflation). This could reflect a stickier inflation environment. Markets reacted negatively to the good news. It signals more room for the FRB to raise rates without having to worry about the job market.

Conclusion S&P 500 0.21% | NASDAQ 1.54%

The FRB is working to provide enough restriction to quell inflation, but not enough to cause a recession. The last time that effectively occurred was in 1994. The FRB aggressively rose rates to keep inflation at bay. If the FRB could successfully achieve a ’soft landing’, the follow-on story to the early ‘90’s was great. That five-year period of growth in the late ‘90’s has been unrivaled. It is still to be seen if the FRB can achieve that soft landing. If they do, they may set the table for a growth heavy period for the next few years.