Green Season | April 16, 2021 | FFS

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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Markets were green as earnings season got under way last week. Should we expect this to continue?

Monday

There was very little market data released on Monday. Markets were little changed on the day as the S&P ended in the red by .81 points and the NASDAQ was 0.4% lower.

Tuesday

CPI data rose to 2.5% YoY, the highest level since 2018. As of late, this would have led markets lower. A pause in the Johnson & Johnson vaccine actually caused concern of a slowdown in re-opening. This left the markets room to run higher as future inflation expectations moderated.

Wednesday

Markets floated in the green most of the day as earning season got underway. They slid near the close as jubilee over reduced risk of inflation was viewed as overdone the prior day. Rates rose on the day affirming the inflation trade.

Thursday

Retail Sales and initial jobless claims boosted the markets at the open. That surge held through the close with NASDAQ leading growth on the markets. Initial jobless claims fell to 576K, the lowest level since the start of the pandemic. Retail sales were expected to grow 5.9%, a healthy rise, however they grew by 9.8%!

Friday

Markets rose on Friday to end the week. The rise allowed all three indices to end the week in the positive. Leadership was in the S&P 500 on the day, resuming the re-inflation trade.

Conclusion

The S&P 500 gained over 1% for the week as earnings got underway. Financial companies led the way and impressed on earnings. Expectations will likely rise for them as long-term interest rates have been on the rise. Economic data for the week was generally positive and received as such. This past week was good measure of expectations for this earnings season!