Mid-Week Market Minute 4.10.24

Markets React to Hotter-Than-Expected CPI Report

Stocks were mostly lower this week as markets digested another hotter-than-expected Consumer Price Index (CPI) inflation report on Wednesday. As of Wednesday morning, the S&P 500 was lower by about 1% on the week while the more interest-rate sensitive Russell 2000 (small cap index) was lower by about 2%. In bonds, interest rates moved higher with the yield on the 10-year Treasury note trading above 4.5% for the first time since the fall of 2023.

The widely followed CPI report accelerated more quickly than expected in March, likely keeping the Federal Reserve on hold with interest rates for the near future. Headline CPI, a broad measure of prices for goods and services across the economy, rose 0.4% for the month, or about 3.5% over the last 12 months. More important to the Fed is the core number, which excludes food and energy. Core CPI also increased by 0.4% for the month, higher by 3.8% from a year ago. The shelter component, which makes up roughly one-third of CPI, rose 5.7% from a year ago. Shelter has been one of the stickier components of inflation and was expected by both the markets and the Fed to begin cooling by this time. 

From the Fed’s vantage point, we believe this inflation report is likely to take a June rate cut off the table. The good news is this sticky inflation has come with a relatively strong economy as well. Just last week, the jobs report came in much stronger than expected, and first-quarter real GDP growth is expected to come in well above 2%. All told, the economy remains on solid ground, and we continue to believe inflation will return to its 2% target, just not as quickly as many expected.

Source: GSAM, CNBC, JPMorgan

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