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WEEKLY SUMMARY: Encouraging inflation reports but rate fears remain
The Dow Jones was up for a 4th week in a row as investors weighed slowing growth signals against signs that inflation pressures were receding a bit more than expected. In the US, Materials and industrials shares outperformed while Technology lagged mainly due to NVIDIA decline. Banking giants JPMorgan Chase, Wells Fargo, and Citigroup kicked off Q1 earnings season. All three topped consensus estimates and brought some relief to investors. The most highly anticipated event of the week was the US CPI report for March on Wednesday. Headline CPI rose only 0.1%, a tick below expectations, bringing the yoy rate to 5.0%, the slowest pace since 5/2021. Thursday brought further encouraging inflation news on the producer side. The core PPI index declined 0.1% in March, marking the first since the height of the pandemic shutdowns in April 2020. On Friday, the University of Michigan’s preliminary gauge of consumer sentiment rose surprisingly. Bond investors seemed to interpret Friday’s data as giving the Fed room to lift rates further, resulting in a rise in longer-term U.S. Treasury yields. Stocks in Europe rose as recession fears waned. Japanese equities gained over the week, with the Nikkei 225 Index rising 3.5%. Sentiment was boosted by Warren Buffett saying that Berkshire Hathaway would increase its investments in Japan. Gold had a great week, hitting record highs before giving up some gains on Friday. Bitcoin held above $30k and Ethereum soared above $2100.
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Most of US equities indices rose to record highs, as investors wagered that a “red sweep” (Republicans winning Presidency, Senate and Congress) would result in faster earnings growth, looser regulations, and lower corporate taxes. The small-cap Russell 2000 Index surged 8.57% for the week but was the sole benchmark to remain out of record territory. Meanwhile, the Dow Jones hit 44.000 for the first time while the S&P 500 closed just shy of 6,000, up 4.7% for the week, its best weekly gain in almost a year. On Thursday, the Fed announced a 25bps rate cut, its first easing move since cutting rates by 50 basis points in mid-September. In terms of economic data, the October ISM services sector activity came in at 56.0, well above expectations and the best reading since August 2022. U.S. Treasuries generated positive returns heading into Friday, as yields largely ended lower than where they ended the previous week.