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Market indexes swung higher this morning following the March Consumer Price Index (CPI) numbers were released. Even though they were a bit hotter on headline than expected — particularly +8.5% year over year, +6.5% on “core” — there were some underlying factors that suggested some of the stickier aspects of inflation might be showing the top of its parabolic curve. This would mean we’re either at peak inflation or already beginning our downslope.
However, as this news got digested throughout the day, investment strategists began to chime in and develop something of a consensus view of the future economy, and this washed out largely with the residue of one ugly word: recession. With last week’s inversion of the yield curve between 2-year and 10-year bonds — which does not in itself mandate a coming recession, but recessions never happen without this inversion — and no real signs of spot oil prices weakening on the horizon, the dreaded “R” word started to get baked back into the cake.
Thus, while the Dow was over +360 points at session highs, the blue-chip index closed -87 points, -0.26%. The Nasdaq slipped -40 points, -0.30%, and is now back down to -17% from its all-time highs set five months ago. The S&P 500, similarly, dropped -0.34% on the day while the small-cap Russell 2000 was the only major index to notch a gain for the day: +0.33% — though still -12.5% year to date.
It’s the third-straight lower day for the S&P and Nasdaq; the Dow has closed lower in the last two. We’re also on the cusp of Q1 earnings hitting high throttle, beginning tomorrow morning when JPMorgan (JPM - Free Report) kicks off earnings season for the big Wall Street banks. The Zacks Rank #3 (Hold)-based parent of Chase is expected to see earnings drop -39% year over year to $2.73 per share, on revenues -5.6% from the year-ago quarter. But JPM has a good track record of positive earnings surprises; the company has only missed on its bottom line twice in the past five years.
Going back to that yield-curve a moment, 2-years and 10-years have been growing wider apart over the past few sessions since the inversion; the “warning sign” for economists is generally within 25 basis points, and it is now at 34 basis points. But is the recession genie already out of the bottle? While it’s probably still too soon to know this for sure — and most economists calling for a recession see it happening in the next year or two, not the next month or two — market participants have gone back to busying themselves about this.
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