Market indices could not hold onto early trading gains following the latest Consumer Price Index (CPI) report ahead of today’s opening bell. The CPI Inflation Rate came down 100 basis points (bps) month over month to +5.0%, and even though the lagging core print year over year ticked up to +5.6%, it looked like a good enough report for market participants to take it to the bank. As it turns out, the four major indices all opened at session highs.
They also closed at session lows, an hour after the minutes to the mid-March Federal Open Market Committee (FOMC) were released. In these minutes, we learned that several voting members considered pausing last month’s rate hike in light of the unknowns surrounding the then-recent collapse of Silicon Valley Bank (SVB). Beforehand, there were also a few members interested in turning the screws 50 bps instead of the 25 in the dot-plot. So the median won out, which also kept the dot-plot intact.
Right now, and based on the language of these minutes, odds are still good another 25 bps hike is on the way at the next FOMC meeting May 3rd. Inflation is still seen as too important to gloss over until the Fed members can assure themselves it won’t come raging back, like we saw in the late-70s/early-80s. And ultimately, the difference between 5.00% and 5.25% on the top end isn’t all that great; it’s unlikely a quarter point would mark the difference between a soft-landing economy and a crash into a deep recession.
Nevertheless, market participants took this as a bearish sign, including the increased odds of something breaking before the Fed finally decides to stop hiking interest rates. Indices moved into the red 60-90 minutes ahead of the closing bell and never looked back. The Dow came out most unscathed, -0.11% on the day, the S&P 500 was -0.41%, the Nasdaq -0.85% and the small-cap Russell 2000 -0.72%. This breaks the holding pattern the markets had been in.
The week isn’t over for important economic metrics, either: tomorrow brings not only Weekly Jobless Claims but also Producer Price Index (PPI) numbers. The PPI is the sister report to CPI, and has actually fallen farther and faster from last-summer highs, which hadn’t been seen in more than 40 years. A +4.6% year-over-year rate is way down from the +11.2% posted back in June of ’22. Can this rate of deceleration continue?
Perhaps more importantly, if we do see inflation rates making a bee-line for +2% inflation — which the Fed has kept in focus for years now — will market participants grow increasingly more concerned about a harder economic landing? If the current downward pattern continues, we may see the first 3-handle on year-over-year PPI since very early 2021. Would this be another marker for the Fed to consider pausing at its next meeting?
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Markets Can't Hold Gains After Fed Minutes
Market indices could not hold onto early trading gains following the latest Consumer Price Index (CPI) report ahead of today’s opening bell. The CPI Inflation Rate came down 100 basis points (bps) month over month to +5.0%, and even though the lagging core print year over year ticked up to +5.6%, it looked like a good enough report for market participants to take it to the bank. As it turns out, the four major indices all opened at session highs.
They also closed at session lows, an hour after the minutes to the mid-March Federal Open Market Committee (FOMC) were released. In these minutes, we learned that several voting members considered pausing last month’s rate hike in light of the unknowns surrounding the then-recent collapse of Silicon Valley Bank (SVB). Beforehand, there were also a few members interested in turning the screws 50 bps instead of the 25 in the dot-plot. So the median won out, which also kept the dot-plot intact.
Right now, and based on the language of these minutes, odds are still good another 25 bps hike is on the way at the next FOMC meeting May 3rd. Inflation is still seen as too important to gloss over until the Fed members can assure themselves it won’t come raging back, like we saw in the late-70s/early-80s. And ultimately, the difference between 5.00% and 5.25% on the top end isn’t all that great; it’s unlikely a quarter point would mark the difference between a soft-landing economy and a crash into a deep recession.
Nevertheless, market participants took this as a bearish sign, including the increased odds of something breaking before the Fed finally decides to stop hiking interest rates. Indices moved into the red 60-90 minutes ahead of the closing bell and never looked back. The Dow came out most unscathed, -0.11% on the day, the S&P 500 was -0.41%, the Nasdaq -0.85% and the small-cap Russell 2000 -0.72%. This breaks the holding pattern the markets had been in.
The week isn’t over for important economic metrics, either: tomorrow brings not only Weekly Jobless Claims but also Producer Price Index (PPI) numbers. The PPI is the sister report to CPI, and has actually fallen farther and faster from last-summer highs, which hadn’t been seen in more than 40 years. A +4.6% year-over-year rate is way down from the +11.2% posted back in June of ’22. Can this rate of deceleration continue?
Perhaps more importantly, if we do see inflation rates making a bee-line for +2% inflation — which the Fed has kept in focus for years now — will market participants grow increasingly more concerned about a harder economic landing? If the current downward pattern continues, we may see the first 3-handle on year-over-year PPI since very early 2021. Would this be another marker for the Fed to consider pausing at its next meeting?
Questions or comments about this article and/or its author? Click here>>