Weekly Market Update

First it was “hard landing”, then “soft landing”, now we have growing buzz around a new type of “landing” – none.  Earlier in the month we had a blowout jobs report, which materially adjusted recession expectations and outlooks, and this week we saw the disinflation narrative that has underpinned much of the early strength for stocks and bond markets lose momentum as the consumer price index (CPI), retail sales, and producer price index (PPI) all came in meaningfully higher than expected.  As a result, talk of a potential 50 basis point rate hike (0.50%) following the March 22 Federal Reserve meeting has grown and the market is now assigning almost a 20% probability of 50 bps (80% odds for a 0.25% hike).  Therefore, interest rates have risen, and stocks have declined for a second consecutive week. However, it is perhaps notable that the S&P 500 fell by less than 1% on the week, particularly after Tuesday’s CPI report came in at 6.4% year-over-year headline inflation versus 6.2% consensus estimate (per FactSet), an outcome that would have easily shaved over 1% off the S&P 500 in a single day a year ago.  Ultimately, positive macroeconomic data surprises have risen recently, which beyond inflation is typically good for economic growth and therefore recession odds are falling.  Nonetheless, good economies and good stock markets do not always coincide and it will be very interesting to see how markets react next week if more data comes in stronger than expected and “no landing” talk continues to grow.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder

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