Soft Landing?

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 retreated further on aggressive Fed intervention. Can they avoid thwarting economic growth and manufacture a “soft landing”?

Monday S&P 500 3.88% | NASDAQ 4.68%

Monday began much as Friday ended. Markets headed south from the open and stayed there throughout the day. This left the S&P 500 closing officially in bear territory. This represents a close down 20% from recent highs (January 3^rd). It was viewed as an investor reaction to the Federal Reserve Board (FRB) meeting later this week. Recent higher than expected inflation may make for more aggressive action from the FRB.

Tuesday S&P 500 0.38% | NASDAQ 0.18%

Markets struggled to find direction on Tuesday. This was likely an anticipatory day as the FRB meeting results will be out on Wednesday. In a break from recent trends, the NASDAQ outperformed the S&P 500.

Wednesday S&P 500 1.46% | NASDAQ 2.50%

The NASDAQ led the way higher on markets Wednesday. This came in response to an FRB hike of .75%, leaving the Fed Funds Rate at 1.5%. They made comment in the post meeting press conference that their year-end target is now updated from 3% to 3.5%.

Thursday S&P 500 3.25% | NASDAQ 4.08%

Markets started in the red and accelerated through the close as a pointed response to the biggest rate hike by the Federal Reserve since 1994. Rate hikes of this size are unusual, but Powell has said they will act to subdue inflation which spurred more selling. Mortgage rates continued their rise as rates responded to the Fed’s Hawkish policy.

Friday S&P 500 .22% | NASDAQ 1.43%

Markets started a rebound bid in early trading and fluctuated throughout the day following comments by Jerome Powell of the Federal Reserve. The volatility index rose to 33 from 27.8, proving the queasy feelings across broad markets. 2-year Treasury yields finished the oscillating week at 3.17% because of rate pressures and earnings outlook for growth.

Conclusion S&P 500 5.79% | NASDAQ 4.78%

Markets felt continued pressure as all indexes retreated on the week. The possibility of a “soft landing” is still on the table but it’s too early to tell. This term is used when there is more restrictive policy in place at the Central Bank and ultimately could determine whether the economy slows down too abruptly or softly. Markets have been responding accordingly. A key measure will be if the volatility index eases in coming weeks.