1. Moving the markets

Today’s market revealed a downturn in the major indexes following the release of March’s inflation data, which exceeded expectations and may delay anticipated interest rate cuts by the Federal Reserve.

Energy was the only sector not to decline, with real estate experiencing over a 4% drop, the most significant loss of the day. After a strong start to the year, the S&P 500’s performance was flat in April, awaiting this inflation report.

The Consumer Price Index (CPI) for March showed a 0.4% monthly increase and a 3.5% rise from the previous year, surpassing the predicted 0.3% and 3.4% increases. The core CPI, excluding food and energy, grew by 0.4% monthly and 3.8% annually, also above the 0.3% and 3.7% forecasts. In April, the CPI’s annual increase rate was 3.2% for all items.

Bond yields rose sharply, with the 10-year Treasury yield climbing above 4.55%, indicating a reacceleration of the March CPI from the previous month and challenging the Federal Reserve’s goal for a 2% inflation rate. The 2-year Treasury yield reached nearly 5%.

The current CPI report confirms a shift from disinflation to persistent inflation, a perspective I’ve long maintained. The probability of the Federal Reserve easing rates this year has diminished, with only a 20% chance of a rate cut in June. The most evident sign of ongoing inflation for many is at the gas pump.

Inflation expectations have hit a new peak, the highest since June 2022. Small Caps suffered the most, falling below their 50-day moving average for the first time since November, while the MAG7 stocks remained stable despite initial losses.

Nvidia and Bitcoin emerged as alternative safety trades for this session. The dollar’s value increased, gold retreated from its continuous upward trend, and oil prices rose due to heightened geopolitical tensions, adding to the strain of higher gas prices.

As the market grapples with these challenges, one wonders how long it can endure the pressure of rising bond yields.

When will the market reach its tipping point?

1. Moving the markets

In a volatile trading session, the major stock indexes initially declined but ultimately recovered, as investors sought to regain optimism before the release of pivotal U.S. inflation data.

The early downturn lacked a clear trigger, suggesting that apprehension over the forthcoming Consumer Price Index (CPI) report dominated sentiment. However, strategic dip buying at lower prices helped the markets rebound by the close.

Chipmaker Nvidia saw its shares fall by 2.4%, while other prominent technology companies like Meta and Netflix also experienced declines of 0.6% and 1.6%, respectively.

The March CPI report, a critical indicator of inflation, is scheduled for release on Wednesday at 8:30 a.m. ET. Analysts anticipate a 0.3% rise in inflation for March compared to the previous month.

Investors are closely monitoring this data for hints about the Federal Reserve’s timeline for interest rate reductions. Currently, opinions are split on whether the Fed will lower rates in June.

The markets have been stagnant recently, reflecting concerns about the Fed’s resolve to decrease interest rates. An unexpectedly high CPI figure could trigger a market correction.

Market analysts believe that any significant deviation from expectations could cause market volatility. This is attributed to the current high valuations, which leave little room for error in economic data or geopolitical developments without causing rapid market selloffs.

Federal Reserve spokesperson Bostic’s mixed messages in the final minutes of trading did not cause a major stir, but they were interpreted positively by algorithmic trading systems, which helped lift the indexes from their lows. Despite this, the MAG7 stocks’ attempted rally ultimately failed.

Broadly, the favored AI stocks have made no significant progress in the past six weeks. Meanwhile, Boeing’s decline continued, Bitcoin relinquished its recent gains, and crude oil struggled to maintain its position above the $85 mark.

Bond yields fell, with the 30-year bond reversing its post-payroll increase. The U.S. dollar fluctuated but ended slightly higher. Amidst this uncertainty, expectations for a rate cut grew, and gold reached a new all-time high.

Will the upcoming CPI report clarify or compound the current market uncertainties?

1. Moving the markets

In today’s trading session, stock performance remained static as traders sought stability after last week’s downturn. Despite a general uptick in the market, the rise in Treasury yields, particularly the benchmark 10-year yield which ascended by 5 basis points to 4.426%, tempered broader gains.

The Dow Jones Industrial Average recorded its poorest weekly showing since March 2023, while the S&P 500 saw its steepest weekly decline since the start of the year, nearly 1%.

However, the markets concluded the previous week on an upbeat note, buoyed by a jobs report that surpassed expectations. The increase in part-time employment has fueled optimism for sustained economic strength and the potential for continued corporate earnings growth, despite the prospect of enduring higher interest rates.

Investors remain hopeful, interpreting negative news as potentially beneficial for the stock market, with expectations of interest rate cuts later in the year.

This sentiment is underpinned by anticipation for the Federal Reserve’s upcoming release of the March consumer and producer price indexes, which are pivotal indicators of the Fed’s success in combating inflation. Economists are forecasting a 0.3% rise in the CPI for the past month and a 3.5% increase on an annual basis.

As the market braces for the potential impact of the CPI, PPI, and the release of the FOMC minutes, stocks have shown little movement, while bond yields have inched upward.

Amidst geopolitical unrest and concerns over a potential Federal Reserve policy misstep, both bitcoin and gold have experienced significant gains.

However, the likelihood of a rate cut in June has dipped below 50%, and major stock groups like the MAG7 have stalled. The dollar experienced an initial surge but subsequently declined, and bitcoin approached its record high of $73k before retreating.

Oil prices initially dropped following reports of Israel’s troop withdrawal from Gaza, only to rebound after the announcement of a limited withdrawal and subsequent attack on Rafah.

With bond yields climbing yet not influencing the S&P 500’s trajectory, all eyes are on the Federal Reserve.

Will the Fed’s minutes reveal the future course of monetary policy this Wednesday?