Is Inflation Becoming a Problem Again?

Apr 15, 2024

Market Recap

U.S. stock markets experienced another down week as investors grappled with worrisome inflation data and escalating tensions in the Middle East. Interestingly, technology stocks held up better than the broader market, with growth stocks outperforming value and large-cap stocks faring better than small-caps. The small-cap Russell 2000 index saw its largest single-day drop in nearly two months on Wednesday, pushing it into negative territory for the year.

The primary driver of negative market sentiment was the release of March’s Consumer Price Index (CPI) data from the Labor Department. Headline CPI rose 0.4%, exceeding consensus estimates, with overall inflation increasing 3.5% over the past 12 months – the biggest jump since September.

However, the following day’s Producer Price Index (PPI) data helped temper inflation concerns somewhat. March PPI rose 0.2%, in line with or slightly below expectations and significantly lower than February’s 0.6% increase. The CPI report showed that the shelter index and gasoline prices were the biggest contributors to March’s 0.4% increase, accounting for over half of the rise in the overall index.

Food prices rose a modest 0.1%, with food-at-home prices flat and food-away-from-home up 0.3%. Core CPI, which excludes food and energy, also increased 0.4% for the third straight month. Notable gainers included shelter, motor vehicle insurance, medical care, apparel and personal care, while used cars and trucks, recreation and new vehicles indexes declined.

Source: JPMorgan

For the 12 months ending March, headline CPI was up 3.5%, accelerating from February’s 3.2% annual pace. Core CPI rose 3.8% over the past year, while energy prices increased 2.1%, the first 12-month gain since February 2023. Food prices climbed 2.2% from a year ago.

In summary, hotter-than-expected inflation data, coupled with rising Middle East tensions, weighed on investor sentiment this week. However, the market reaction was somewhat mixed, with tech and growth-oriented stocks showing relative resilience compared to the broader indexes. Investors will be closely monitoring upcoming data and geopolitical developments to gauge the path forward for equities.


Weekly Chart Review


What’s Going On In Your Portfolio?

Our clients’ portfolios continue to remain heavily allocated in cash.

As the Dow Jones Index is on the verge of going negative for the year, investors seem to be finally waking up to the realization that inflation is going to stick around a bit longer — something the bond market has been hinting at all year.

I will be keeping a close eye for opportunities during this pullback, but for now, cash is king.


Upcoming Economic Data to Keep an Eye On


Source: Trading Economics


By John Rothe, CMT

Founder & Chief Investment Officer

Riverbend Investment Management

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