March 15, 2024

Weekly Market Commentary March 11th to March 15th 2024

Hotter than expected inflation data sent yields higher on the week and reduced investor expectations on 2024 rate cuts. The Consumer Price Index (CPI) indicated that prices rose 3.2% from last year, above expectations and higher than last month’s reading of 3.1%. When stripping out volatile items like food and energy, prices rose 3.8%, also above expectations. Inflation wasn’t any better for producers, as the Producer Price Index (PPI) indicated price increases of 1.6% and 2.0%, respectively, also above expectations. Inflation has been persistently sticky as it gets closer to the Fed’s target, and this month was no exception. Investors continue to price in fewer rate cuts with every sticky reading, now only three cuts in 2024, a far cry from the six that was priced in to start the year.

As sticky inflation persists, consumers are beginning to show weakness in the form of weaker Retail Sales numbers. December and January retail sales figures were revised lower, and February was below expectations. On the month, retail sales grew 0.6%, below the 0.8% expectation. Sales excluding cars and gasoline only grew 0.3%. February’s report demonstrates that spending momentum is fading, particularly in the service sector, and a period of slower growth may be ahead.

New York manufacturing activity saw a meaningful drop, contracting to -20.9. New orders, shipments, and employment all decreased more than anticipated in March. While New York state manufacturers do not see a faster pace of input-cost inflation, they are still confident in their ability to pass on higher prices to customers.

On the week, yields had a meaningful increase while the equity markets remained mostly flat. The S&P 500 finished at $5,117 down 0.1%, the Nasdaq finished at $15,973 down 0.7%, and the Dow Jones finished at $38,715 down only 0.02%. The 2-Year U.S. Treasury yield increased 25bps to 4.73% while the 10-Year increased 23bps to 4.30%, resulting in a 43bp inversion.

Next week the Federal Open Market Committee will meet on Wednesday and decide on interest rate policy. If recent history is any indication, their comments may be a market-moving event.

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