Upcoming Inflation Report and the Markets
Markets pulled back last week as bond yields continued to rise. We saw global markets (represented by the MSCI All Country World Index) down -1.4% and domestic stocks (represented by the S&P 500 Index) down -1.2%.
Markets by Sector
The dispersion in returns by sector in the U.S. is very wide this year. On one hand, there is energy, which is up over 44% so far this year. On the other side is technology and communication services, which are both down over 12% during the same time.
The Rise in Bond Yields and Inflation
The continued rise in bond yields came partially in response to the meeting minutes from the last Federal Reserve meeting in March. At the March meeting, minutes show that the members are considering a 0.50% increase in interest rates at the next meeting rather than 0.25%. While that same decision was on the table at the March meeting, voting members ultimately decided on a smaller 0.25% increase. With unemployment very low, inflation likely remaining elevated this month, and the markets already pricing it in, it is becoming increasingly likely that members do decide to go with a more aggressive 0.50% increase at the next meeting in May.
The Labor Market
Last week we commented on the strong labor market, which is down to 3.6% unemployment. The weekly unemployment claims report on Thursday showed that initial claims fell to 166,000, which is the lowest level since 1968. For perspective, that figure was up around 6 million claims in early April 2020.
Consumer Price Index
All eyes will be on the updated Consumer Price Index report released on Tuesday. With inflation running high since mid-2021, markets have expected an aggressive Federal Reserve to combat rising prices.
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.
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