April 15, 2024

“The only real mistake is the one which we learn nothing”

Henry Ford 

“Only thing for sure is Death and Taxes”

Benjamin Franklin

Happy Tax Day.

So, what have we learned after a lousy week in the market? Markets giveth and markets taketh away, but the good news is it never lasts very long, and we always recover. Here are the numbers. The S&P 500 lost 1.69%, the Dow jones Industrial Average retreated 2.4% the Nasdaq trimmed .68%. Internationally, the bright spot the FTSE100 gained 1.07% but the MSCI-EAFE lost 2.2%. The 2-year treasury closed with a yield of 4.89% and the 10-year narrowed to 4.5%.

The inflation numbers were bad, triggering a response from the Federal Reserve to rethink rate cuts.  Oil rose to over $90 a barrel but finished the week at $85.45 with the prospect, after the Iranian attacks, of the Biden administration plowing ahead on reducing or eliminating fossil fuel production, pushing oil to over $100 per barrel. Crude futures finished higher last Friday, with the risk of an Iranian attack on Israel leading prices for U.S. and global benchmark oil to their highest intraday levels in about six months. Plus, the continued chaos on the southern border as the budget realities in many blue cities are now forcing serious discussions about tax increases causing unrest to the local citizenry regardless of their political affiliation. But other than that, it was a good week.

From Barrons columnist Nicholas Jasinski: “the latest inflation data and public remarks from Federal Reserve and First-quarter earnings season kicked off with results from several large U.S. banks. The March producer price index came in lower than expected this morning, the latest in a string of inflation surprises in 2024. The basket of costs paid by domestic producers of goods, services, and construction rose by 0.2% in March from February, according to the Bureau of Labor Statistics, versus economists’ forecast for a 0.3% increase and February’s 0.6% growth. The PPI was 2.1% higher than a year earlier. The core PPI, which excludes food and energy, rose 0.2% in March, matching the consensus call. That compares with a 0.3% increase in February and equals the average monthly growth over the prior six months. It puts the year-over-year rise at 2.4% for the core PPI—the highest since September. The March PPI was the latest inflation bogey for investors and the Federal Reserve. The report is unlikely to rock the boat as much as yesterday’s consumer equivalent, but it won’t save the day for those counting on Fed interest-rate cuts in 2024 either. Recent months’ inflation on the wholesale level has been more subdued than the consumer version. The headline and core consumer price indexes were both up 0.4% in March, and 3.5% and 3.8% year over year, respectively, BLS data showed yesterday. The Fed focuses on another inflation measure, the core personal consumption expenditures price index, which has a different methodology. It incorporates elements of both the CPI and PPI and tends to come in somewhere between the two. March PCE data will be released on April 26.

Investors and Fed watchers heard from a trio of regional reserve bank presidents today: New York’s John Williams, Richmond’s Thomas Barkin, and Boston’s Susan Collins. All three nodded to recent hotter-than-expected inflation data, further tempering expectations for a near-term move lower in interest rates.”

An early reading of consumer sentiment in April retreated from a 32-month high, a sign of some frustration on the part of Americans about lingering inflation. “The first of two readings of the consumer-sentiment survey dipped to 77.9 this month from 79.4 in March”, the University of Michigan said last Friday. The index reached the highest level in March in 32 months, but it’s still well below the pre-pandemic peak of 101. “A slight uptick in inflation expectations in April reflects some frustration that the inflation slowdown may have stalled,” said survey director Joanne Hsu.

Any good news? Well, the dollar is back on top. The greenback had for its best week since September 2022 last Friday as the latest batch of hotter-than-expected inflation data turbocharged bullish bets on the U.S. currency. All the dollar’s major rivals have softened against the greenback this week. And nearly all of them continued to trade in the red against the dollar on Friday, except for the Japanese yen, which rebounded after hitting a 34-year low on Thursday.  So, if you’re planning a foreign vacation, now is the time to go if you have any money left over from grocery shopping or filling your tank.

And the markets? As Barron Alex Eule reports, Flight to Safety. Stocks finished a tough week with a particularly tough day on Friday. The Dow Jones Industrial Average lost 476 points, or 1.2%, bringing its weekly decline to 2.4%. It was the blue-chip index’s worst week in more than a year. The S&P 500 finished down 1.5%. The Nasdaq Composite, which had been a bright spot this week, finished the day down 1.6%, bringing its weekly move into the negative column. Volatility, meanwhile, is picking up. The CBOE Market Volatility Index, colloquially known as the “Fear Index,” ended the day up 16%, to $17.31, its highest close since October. The day’s — and week’s — losses can be chalked up to ongoing inflation fears, rising geopolitical worries, and now, maybe, an earnings season that so far is mediocre.

Speaking of earnings, JP Morgan had a bad day as the earnings report failed to impress. The bigger-picture data was fine. JPMorgan’s first-quarter earnings topped expectations and revenue rose in-line with what Wall Street analysts called for. The bank, however, reported lower net interest income, or NII, and its guidance for $89 billion, up $1 billion, fell short of expectations. Shares of Wells Fargo and Citi, which also reported last Friday, held up relatively well on the day, dropping 0.4% and 1.7%, respectively. There’s more to come from banks. Goldman Sachs will report today, with Bank of America and Morgan Stanley due on Tuesday. First-quarter reporting in general picks up next week.

Looking ahead…. Envestnet and we agree, The US economy has recently performed above-trend and at unsustainable levels, and while the consensus among economists is that there will be an inevitable slowing in the months ahead, it will still perform better than most of the rest of the world. The global economy has been hampered by the lingering effects of the pandemic and its aftershocks, and while the US has come out of it fairly well, Europe, Canada, and Southeast Asia have struggled. Economists are maintaining a cautiously optimistic outlook for the US economy and are considering several key factors that might influence growth trajectories. The first is the FOMC’s monetary policy, which analysts expect and hope will become more accommodative in coming months following two years of aggressive interest rate increases to combat inflationary pressures. The FOMC will attempt to bring about a so-called “soft landing” for the economy, aiming at continuing to bring inflation down to its target level of 2% while at the same time sustaining consumer spending and business investment, critical drivers of economic activity. Second, the labor supply remains consistent and strong. Economists cite several risks to the generally positive outlook, including persistent supply chain disruptions which are exacerbated by geopolitical tensions, but overall, while economists believe the US economy is poised for continued growth in the remainder of 2024.

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Mike