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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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Stocks recorded broad losses, as concerns over tensions in the Middle East and the possibility of U.S. interest rates remaining “higher for longer” appeared to weigh on sentiment. Mega-cap technology shares lagged as rising rates placed a higher theoretical discount on future earnings. A Q1 revenue miss from ASML Holdings also seemed to weigh on the sector and on general optimism toward companies with AI-related earnings. Some strong economic data (e.g retail sales +0.7% vs. 0.3% expected) appeared to increase worries that the Fed would push back any interest rate cuts to the fall, if not to 2025. Conversely, downward surprises in housing market data may have furthered inflation fears by auguring continued supply tightness. As was the case last week, Fed officials expressed their concern with recent economic data.