Mid-Week Market Minute 2.14.24

Stocks Lower After CPI Report; Retail Sales Data This Week

Stocks around the globe were sharply lower in early trading this week following a hotter-than-expected inflation report. The S&P 500 index was lower by about 1% mid-week, while the more interest-rate sensitive Russell 2000 (small cap index) was lower by about 2%. This comes on the back of Tuesday’s CPI inflation report showing headline inflation rising at a 3.1% annual clip, higher than the 2.9% expected. More importantly, core inflation, which excludes the more volatile food and energy components, was higher by 3.9% against expectations for a more modest 3.7% increase.

Stubborn inflation, along with recent data showing a strong economy and robust job market, have pushed out expectations for future rate cuts by the Federal Reserve. Futures markets now pricing in about a 35% probability of the first funds cut at the May 1 meeting. Expectations are now for about four cuts for the year 2024, which would result in a funds rate in the 4.25% - 4.50% range by year-end. Both the 2-year and 10-year Treasury notes are about 15 basis points (0.15%) higher on the week, trading around 4.63% and 4.31%, respectively.

On the earnings front, FactSet reports 67% of S&P 500 companies have reported actual results for the fourth quarter and 75% have reported actual earnings above estimates. In total, companies are reporting earnings 3.8% above estimates. Looking ahead on the economic front, GDPNow data is estimating a GDP growth rate of 3.4% for the first quarter of 2024, with the next estimate due on Thursday. Thursday also will bring retail sales for a measure of the health of consumer spending. As the Fed evaluates economic growth and inflation in determining future policy, they will have plenty of incoming data to help guide their decisions. 

Source: GSAM, CNBC, JPMorgan, FactSet

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