April 13, 2024 Market Update

The U.S. stock market fell for a second week.  Hotter-than-expected inflation news combined with growing troubles in the Middle East weighed on the S&P 500 Index, which finished the week at its lowest close in a month.  The S&P is still up by a robust 7.4% this year, but sentiment has become increasingly cautious in recent weeks. 

The bond market also retreated, based on the Vanguard Total U.S. Bond Market ETF (BND), a proxy for government bonds and investment-grade securities.  After a 0.7% slide last week, the fund closed near its lowest level since December. 

The Consumer Price Index (CPI) for March rose by 0.4% over the month and 3.5% year-over-year, compared to estimates of a 0.3% monthly increase and a 3.4% year-over-year gain.  Core CPI, which excludes volatile food and energy prices, also accelerated, increasing by 0.4% from the previous month and rising 3.8% from a year ago.  This is slightly above the estimates of 0.3% monthly and 3.7% annually.

The minutes from the Federal Reserve’s Open Market Committee’s March meeting, released on Wednesday, highlighted committee members' concerns that inflation isn't declining quickly enough, especially considering the higher-than-expected readings in January and February.  Consequently, Mr. Market (a term used to personify the collective expectations of market participants) now anticipates the first rate cut to occur in September, with a total of just one or two cuts expected this year.

Although stocks fell again last week, investors have largely remained surprisingly sanguine about the slowing pace of disinflation.  The equity market’s strong performance year to date suggests that investors have been comforted by the strength of the economy and solid corporate earnings reports. 

The optimism seems sensible considering moderate inflation is preferable to the need for more significant rate cuts to support a struggling economy.  As The Wall Street Journal’s Aaron Beck wrote this past week: “It is enough to remind one of the good old days, before ultralow rates and quantitative easing, when economic optimism alone was enough to propel bull markets, even when rates were high.”

That’s all for now.  Have a great weekend, and invest wisely, my friends.