What’s Up In The Market

Week Ending April 12, 2024

Weekly Market Summary

Global Equities: Stocks slipped in weekly trading after hotter-than-expected inflation data caused investors to reevaluate rate cut expectations. The S&P 500 fell -1.5%, the Dow Jones Industrial Average slid -1.4%, and the Nasdaq Composite finished -0.5% lower. Small Cap stocks lagged their larger counterparts with a -2.8% weekly pullback. Developed International stocks were also lower, falling -2.2%, while Emerging Markets were down -1.8% during the week.

Fixed Income: 10-Year Treasury yields shot up after hot inflation data hit the news, exceeding 4.5%. Auctions for both 10- and 30-year bonds held during the week were met with weak demand. Expectations for a first half 2024 rate cut plummeted, with CME Group’s FedWatch tool showing just a 27% likelihood of a June rate cut. High yield bonds also sold off during the week, down -0.6%.

Commodities: Concerns that Iran could escalate the Mid East conflict over the weekend drove oil prices higher, with US benchmark West Texas Intermediate prices ending the week just under $86 a barrel. Gold peaked at $2,445/oz during the week but slipped Friday afternoon to around $2,370.

Weekly Economic Summary

Inflation not Transitory? Investors were content to dismiss the hot January and February inflation readings as temporary seasonal blips, but March’s data was met with worries that inflation has become entrenched, and the Fed may be incapable of solving the problem. The Consumer Price Index (CPI) report showed a 0.4% monthly uptick in both headline and Core inflation, bringing the annual rate to the highest level since September 2023 at 3.5% headline and 3.8% Core. Shelter and Transportation remain pain points, along with energy prices.

Consumers Worried: The April Consumer Sentiment index fell from a 32-month high, reflecting growing worries about inflation. Consumers expect inflation to remain at 3.1% in the next year, up from the 2.9% expectation reported in the prior month. Worries about geopolitical tensions and election year politics were also reported as areas of concern for consumers.

Bank Earnings: First quarter earnings kicked off Friday, with several financial firms reporting strong results. JPMorgan (JPM), Citigroup (C), and BlackRock (BLK) all exceeded expectations, while Wells Fargo (WFC) underwhelmed. Despite the mostly solid results, investors dumped shares at the market open, with JPM down as much as -5.5% during the Friday session. Conservative guidance was the rationale for the selloff, although the move was still unexpectedly bearish considering the impressive earnings results and the tendency for banks to lowball early-year forecasts to increase odds of beating later in the year.

Chart of the Week

The Chart of the Week shows the underlying contributors to Core CPI inflation over the past five years. While progress on goods-related inflation has helped bring down the overall Core CPI rate, there has been a concerning lack of movement in shelter inflation, represented by the red bars. This is somewhat concerning, because the Fed policy of keeping rates higher is having the unfortunate consequence of keeping homes off the market, since the artificially low rates from the pandemic allowed 60% of homeowners to lock in 3% or lower mortgage rates. The Fed appears boxed into a corner here – lowering rates could increase demand for mortgages and cause housing prices to surge higher, while keeping rates high is constraining the supply of homes available for sale and therefore also driving up home prices.

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