Weekly Market Update: April 15, 2024

The March Consumer Price Index (CPI) report signaled that inflation is still running hot. Specifically, the CPI and the core CPI, which excludes the more volatile food and energy components, both rose 0.4% month to month, topping the expectations calling for 0.3% increases. On a 12-month basis, the CPI and core CPI increased 3.5% and 3.8%, respectively, with both readings above consensus forecasts. This situation bears watching, given the recent surge in commodities prices, particularly in the energy market. The odds of the Federal Reserve cutting interest rates at the June Federal Open Market Committee (FOMC) meeting tumbled on the CPI data, and the prognostications for multiple rate reductions this year are down as well. Treasury market yields jumped on the report, which typically has not been good news for stocks.

The employment data will not put pressure on the Federal Reserve to reverse monetary policy course, either. The nation added 303,000 jobs in March, which was well above the consensus forecast of 200,000. That, along with the unemployment rate remaining relatively unchanged at 3.8%, was another indication that labor market conditions are still tight.

The U.S. economy is expanding at a solid pace. The continued rise in job creation has supported consumer spending, which rose 0.8% in February. That, coupled with an expansion of manufacturing activity in March, following 16 straight monthly contractions, has pushed talks of a possible recession, which surfaced in early 2023, further into the future. At worst, it appears that the Fed may be able to navigate a “soft landing” for the domestic economy.

First-quarter earnings season is now at hand. Wall Street will be examining the latest round of results and commentary from the leading banks for signs of any building stress in the financial system. Overall, the consensus forecast is for S&P 500 first-quarter profit growth in the neighborhood of 3%. We think earnings gains will be needed to justify the S&P 500 Index’s elevated price-to-earnings multiple, which stood above 20 entering earnings season.

Conclusion: With growing uncertainty about when the Federal Reserve will begin to loosen the monetary reins, we still think a portfolio mix of mostly high-quality stocks and cash-equivalent securities will prove astute.

Source: ValueLine.com