Things That Go Bump...

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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Things were bumpy last week. Did that give us any indication of how things will go in the coming weeks?

Monday S&P 500 1.14% | NASDAQ 2.24%

The markets opened the week in the red. It appeared to be more of a hangover from the strong jobs report last Friday. A strong job market allows the Federal Reserve Board (FRB) to focus on inflation. Additionally, Elon Musk backed out of his purchase of Twitter, which shook the communications sector.

Tuesday S&P 500 0.92% | NASDAQ 0.96%

Recessionary fears gripped commodity markets on Tuesday. Oil prices have continued their reach and equities fell in tandem. Equity moves were likely anticipatory of Consumer Price Index (CPI) data due out on Wednesday.

Wednesday S&P 500 0.45% | NASDAQ 0.15%

CPI reported on Wednesday at the highest level since the early 1980’s. Core CPI actually fell to 5.9%. The August reading should have better news as gas prices have softened in recent weeks. Markets opened deep in the red on the inflation news and climbed out throughout the day.

Thursday S&P 500 0.30% | NASDAQ 0.05%

Bank earnings started on Thursday and set the tone as JP Morgan missed estimates. In all, markets were not heavily shaken by the news. This did however keep things in the red for value stocks.

Friday S&P 500 1.91% | NASDAQ 1.75%

Stock Markets rallied to close out the week. Bank stocks outperformed on better-than-expected earnings from Citigroup. Retail sales rose more than expected increasing investor optimism.

Conclusion S&P 500 0.93% | NASDAQ 1.57%

Friday’s bullish move was not enough to erase four straight days of market losses. Growth stocks were favored mid-week, but Value led the week on the back of Monday and Friday. One thing that is promising is that the volatility in markets seems to be calming down. Looking ahead, the VIX shows an expectation of less than a 1% move in equities daily. These swings are moving back to a more sustainable pace for growth to occur.