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Equities Slip Following Hotter-than-Expected Inflationary Pressures

Equities Slip Following Hotter-than-Expected Inflationary Pressures

Equities Slip Following Hotter-than-Expected Inflationary Pressures

Equity markets slipped last week as inflation data came in higher than expected. Global equities (represented by the MSCI All Country World Index) were down -0.43%, and domestic stocks (represented by the S&P 500 Index) were down -0.09%.

Consumer Price Index

Two inflationary reports were released last week in the Consumer Price Index (CPI) and the Producer Price Index (PPI). On Tuesday, the Bureau of Labor Statistics reported that core CPI (excluding food and energy) rose at a 3.8% annualized rate for February. While this marks the lowest level since May 2021, the downward momentum towards the Fed’s 2% long-term target inflation level has slowed as the month-over-month core CPI readings have been higher than expectations for two consecutive months. Headline PPI rose 1.6% on a year-over-year basis for February, the highest level since September and hotter than expectations.

Equities Slip Following Hotter-than-Expected Inflationary Pressures

US Retail Sales

US retail sales ticked up 0.6% in February following a 1.1% drop in January. However, February’s figure still missed expectations with a notable decline in online sales.

US Treasury

Treasury yields rose last week in response to the inflation readings. After dipping the prior week to a level of 4.08%, the 10-year US treasury rate jumped to end the week at 4.31%. The 10-2 year US treasury spread remains inverted going back to mid-2022.

Equities Slip Following Hotter-than-Expected Inflationary Pressures

Looking Forward

This week the US Federal Reserve holds their two-day policy-setting meeting. Markets widely expect the Fed to keep rates steady for the fifth consecutive meeting at a range of 5.25-5.50%. Based on Fed Funds futures, markets expect the Fed’s first rate cut to occur either during their June or July FOMC meetings.

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.

Mike Horwath

Mike heads the internal Investment Committee that is responsible for the investment direction of the firm. He works closely with Diversified’s financial planners to support the investment side of the lifelong financial planning process. Lastly, it’s Mike’s responsibility to oversee the ever-changing global investment landscape and work with the planners to evaluate the impact on each of our client’s strategies.

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