The futures markets, which had been well in the green this morning ahead of the release of the U.S. Bureau of Labor Statistics’ Consumer Price Index report, executed a U-turn as the government inflationary data came in much higher than expected. The report showed that headline prices were up 0.4% in March end up 3.5% year over year. The so-called “core” prices, which exclude more-volatile food and energy prices, increased 0.4% and were up 3.8% year over year. These data show that inflation remains above expectations, causing a sharp decline in the major market indices since traders now believe the Federal Reserve will delay interest-rate cuts further into the future. Market participants had previously been speculating that the first interest-rate cut would occur at the June Federal Open Market Committee (FOMC) meeting. Overall, the movement in stocks suggests a weak start to the trading day. Readers should note that the minutes of the Federal Reserve’s March meeting will be released this afternoon, but we think it’s unlikely that “yesterday’s thinking” information will offset the impact of the latest inflation numbers.
Tuesday trading had started on a positive note, but the optimism was short-lived as the major indices began to sink as the day progressed. Stocks managed to recover into the close, with the S&P 500 increasing by 8 points (up 0.14%) and the NASDAQ finishing higher by 53 points (up 0.32%). The Dow Jones Industrial Average ended the day slightly in the red with a loss of 9 points (down 0.02%), primarily due to underperformance in a few key components. Market breadth was somewhat positive, with advancers outpacing decliners by a 1.4-to-1.0 ratio. Notably, REITs were among the best performers on the day, while financial equities were among the weakest. A few big tech names, such as Meta Platforms (META) and NVIDIA (NVDA), also finished in the red, indicating some sector-specific challenges.
In commodity news, oil prices fell yesterday ahead of inventory data, as traders have taken profits on moves higher in recent weeks. Oil prices remained lower after a build in inventories was reported. Elsewhere, the yield on the 10-year Treasury spiked 15 basis points, to around 4.5%, following the release of the CPI data. The Chicago Board Options Exchange Volatility Index, or VIX, commonly known as the fear index, rose sharply after the open, but retraced those early gains through much of the day. This rise in the VIX, despite equity markets recently reaching all-time highs, signals that investors are pricing in a greater amount of future volatility. Gold prices rose considerably yesterday with traders anticipating a higher degree of economic uncertainty and still-elevated inflation, further underlining the cautious sentiment in the market.
Several economic reports will be released in the days ahead. These include initial jobless claims and the core- and non-core Producer Price Indices on Thursday. On Friday, the import price index and the University of Michigan’s Consumer Sentiment index are on the docket. Additionally, a number of Federal Reserve Regional Presidents will be giving remarks on the broader economy. Elsewhere, earnings season will kick off this Friday with several large banks, including Dow-30 component JPMorgan Chase (JPM), reporting quarterly results and their outlooks for the rest of the year. - John E. Seibert III
At the time of this article’s writing, the author held positions in one or more of the companies mentioned.
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