Rough Start | March 25, 2022 - Financial Future Services

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 have now gained for two weeks after a rough start to the year. Should the growth continue?

Monday S&P 500 0.04% | NASDAQ 0.40%

Markets started on shaky footing and found its way lower for the day. The markets were reacting to comments from Federal Reserve Board (FRB) Chair Powell. He stated inflation is running much higher than they would like, and they will take aggressive actions to combat it. He referenced 0.5% hikes as an option. Additionally, oil prices spiked as a peaceful resolution in Ukraine seemed to become less likely over the weekend. The net impact is additional concern for inflation for the FRB. The S&P 500 ended up clawing back to even to close the session.

Tuesday S&P 500 1.13% | NASDAQ 1.95%

Markets came out punching on Tuesday morning. Word that Ukraine was making ground reclaiming neighborhoods helped sentiment. Oil prices softened and the 10-year treasury yield jumped. Over the last 3 months the yield has risen .88% reflecting the stress created by the FRB policy around rates.

Wednesday S&P 500 1.23% | NASDAQ 1.32%

Markets opened in the red and stayed there all day. Sentiment was sour at the open as new home sales continued to slow. More impactful, however, was a larger than expected draw down of oil supplies for the US. Elevated concerns of an oil shortage ended up pushing oil prices above $115.

Thursday S&P 500 1.43% | NASDAQ 1.93%

Services and manufacturing both showed signs of strengthening. Additionally, jobless claims came in at a historically low level. All of these would point to a more hawkish FRB, but markets climbed. In part, oil retreated as WTI Crude came in around $111. While equity markets rallied on oil’s slide, bond markets tipped lower as rate increase odds rose.

Friday S&P 500 0.51% | NASDAQ 0.16%

Both consumer sentiment and pending home sales softened. Setting markets in the wrong direction Friday morning. The S&P managed to claw its way to positive territory. This was a statement of investor sentiment as opposed to data. Treasuries continued the sell off that has been underway for a few weeks now.

Conclusion S&P 500 1.79% | NASDAQ 1.98%

The markets climbed for the week as investor sentiment seems to be improving. Days starting in the red and investors buying into the close is pushing markets to the green. This sentiment is a clear message from investors that status quo from the global environment will still spell growth for the US economy.