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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 US equities indexes ended the week lower, although the tech-heavy Nasdaq Composite advanced modestly and cleared the 20,000 mark for the first time. The Russell 2000 Index recorded a second consecutive week of underperformance against the S&P 500 Index. Growth stocks posted a third consecutive week of outperformance versus value, thanks in part to gains in shares of Tesla (12%) and Alphabet (8.4%). On the macro-economic side, stagflation fears started to rise once again. Indeed, YoY CPI and PPI both accelerated. Meanwhile overall macro surprises disappointed for the fourth week in a row: on Thursday, the Labor Department reported a surprise jump in weekly initial jobless claims to a two-month high of 242,000.