-Darren Leavitt, CFA

Trade was quiet this week as investors awaited inflation data and the start of first-quarter corporate earnings.  Inflation data was mixed but showed another month of moderating prices.  The reported inflation data did raise expectations that the Federal Reserve would raise its policy rate by another twenty-five basis points in their May meeting from just over 70% to 79%.  At the end of the week, Fed rhetoric echoed the Fed’s minutes from the March meeting with President Waller, suggesting the Fed’s work has hardly moved the inflation needle and that more rate hikes are needed, and that rates should remain elevated for longer than most expect.

Interestingly, three rate cuts are priced into the market before year-end.   The FOMC minutes suggested that many Fed officials expect a mild recession by the end of the year and that the most recent regional bank failures will most likely tighten financial conditions further.  Q1 earnings kicked off with the financials. JP Morgan, Citi Bank, Wells Fargo, Blackrock, and PNC showed better-than-expected results and helped propel the financial sector to a nice gain for the week.  Conversely, United Health Care disappointed investors due to uncertainties surrounding earnings forecasts because of changes to the Medicare Advantage program.  Influential Boeing also tempered markets on the announcement that 737 Max production would be hindered due to problems with some parts.

The S&P 500 gained 0.79%, the Dow advanced 1.2%, the NASDAQ inched 0.29% higher, and the Russell 2000 rose 0.49%.  A higher-than-expected Core CPI reading shifted the entire US yield curve higher. The 2-year yield increased by fourteen basis points to 4.10%, while the 10-year yield jumped twelve basis points to 3.52%.  Oil prices continued to move higher, with WTI prices increasing by 2.29% or $1.85 to $82.55 a barrel.  Gold prices fell by $7.60 to close at $2017.20 an Oz.  Copper prices increased by $.09 or 2.2% to $4.11 an Lb.  Of note, Bitcoin traded above $30,000 as cryptocurrencies have garnered more attention from global banking concerns and the notion that the US Dollar will face challenges to its reserve currency status.

Economic news was centered on the Consumer Price Index, which showed an increase of just 0.1% in March; the street was looking for a rise of 0.3%.  The headline number increased 5% year-over-year, down from February’s 6% increase.   Core CPI which excludes food and energy from the calculation, increased by 0.4%, in line with expectations.  The Core reading increased by 5.6% in March, up from 5.5% in February.  This increase through a kink into the idea that the Fed should pause in the May meeting. Producer prices also showed moderation. The headline PPI fell by 0.5% when the street expected it to increase by 0.1%.  The Core reading came in at -.01 versus the consensus estimate of 0.2%.  On the labor front, we say Initial Claims increase by 11k to 239K and Continuing Claims decrease by 13k to 1.810m.  Retail sales announced on Thursday also showed the consumer pulling back from spending.  Retail sales fell by 1% against expectations of a 0.4% decline.