Stock trading looks to open in a modestly positive fashion today. Prior to the markets’ open, the U.S. Bureau of Labor Statistics released March inflation data. The Producer Price Index (PPI) declined 0.4%, significantly below economists’ consensus estimate of a 0.2% expansion and a flat reading for the month of February. The core PPI, which is adjusted for volatile food and energy costs, was down 0.1%, compared to an expected step-up of 0.3% and the month-earlier upward pace of 0.2%. On a year-over-year basis, the headline PPI and the core PPI advanced at slower rates of 2.7% and 3.3%, respectively. In February, by the same measure, the PPI rose 3.2%, and the core number was a gain of 3.4% (revised from 3.3%).
As was not anticipated, wholesale inflation came in cooler. Still, many manufacturing and services companies are preparing for the prospect that their materials and component outlays will rise ahead, largely due to increasing import prices. In line with the PPI data, earlier this week, the Consumer Price Index numbers were a bit tamer than many had feared. Even so, inflation is stronger than the Federal Reserve would like.
Shortly, the University of Michigan will unveil its preliminary consumer sentiment survey for April. A tepid reading of 55.0 is expected, down from the lackluster level of 57.0 for March. Consumers are increasingly concerned that President Trump’s import tariff policy will stress their budgets, assuming higher goods and services prices, in the coming months. Too, they are worried that inflationary pressures could hurt employer earnings, in turn, leading to possible job cuts.
Also this morning, stock-market watchers will hear from Boston Fed President Susan Collins, St. Louis Fed President Alberto Musalem, and New York Fed President John Williams. Most probably, they will speak on the White House’s trade policy and its potential impact on the domestic and world economies. Given continued policy uncertainty, we would not be surprised to see the central bank again hold short-term interest rates steady, at 4.25%-4.50%. The Fed is scheduled to meet May 6th-May 7th. Wall Street is hoping for cuts later this year.
Notwithstanding heightened volatility, the major domestic stock market indexes seem poised to post gains for all of this week. As of Thursday’s close, the tech-weighted NASDAQ composite had recovered 5.1%, the broader Standard & Poor’s 500 index had rebounded 3.8%, and the blue-chip Dow Jones Industrial Average had managed to improve 3.3%. That said, year to date, the NASDAQ, S&P 500, and the Dow are off more than 15%, 10%, and nearly 7%, respectively, owing largely to disquiet over tariffs.
At mid-week, President Trump, seeing the bond market weaken and the prospect of a serious economic downturn, backed off from aggressive import duties on most countries, limiting them to 10% and placing a freeze on more-Draconian impositions for a 90-day period. (Tough tariffs on steel and car imports remain in place.) This granted the stock market a reprieve. Nonetheless, the President is continuing with a harsh stance toward China, the second biggest economy in the world, placing whopping tariffs of 145%, in total, on the country’s exports to the United States. Stocks fell on Thursday. For its part, China has announced it is retaliating with a hefty combined 125% duty on American goods coming into its marketplace.
Ahead, the stock market will continue to move on the latest trade news. As well, a fresh batch of corporate earnings reports has begun streaming in, and will be closely reviewed for any signs of weakness. What’s worrisome is that several companies appear set to refrain from giving forward-looking guidance, considering the macroeconomic uncertainty. Investors would do well to be conservative, building cash reserves to put to work once the dust finally settles, which could take quite a while. Within their portfolios, the focus should stay on the highest-quality equities. – David M. Reimer
At the time of this article’s writing, the author did not hold positions in any of the companies mentioned.
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