Market Update: April 14, 2023

The market continues to remain remarkably resilient despite the tough headlines regarding bank failures over the last 2 months. However, immediate threats to a recession have eased with strong quarterly performance from large banks, easing inflation, and no further banking failures. Thus, the market continues to trade in a sideways trading pattern and threatens to breakout above said trading pattern in the near future.

In the news this week, JPMorgan reported solid quarterly earnings, kicking off this quarter’s earning season. Retail sales fell 1% in March indicating lower spending from consumers. And inflation eased for the month of March to 5%, the lowest level in 2 years.

Doing a deeper dive on that inflation reading, here in the red is 5% total CPI reading. A big driver of that decline was a large drop in energy prices. This drop does not include a production change out of OPEC that occurred late in the month so the energy drop may be a little misleading. Core CPI items remained elevated for the month as well.

Looking at Sticky-CPI, this is the first time since inflation began that Stick-CPI fell. As a reminder, Sticky-CPI reflects price increases in products that tend to be permanent. Sticky-CPI is a reasonable leading indicator of future inflation. In this case, Sticky-CPI fell from 6.4% to 6.3%, a good sign of easing inflation tensions.

Despite the easing inflation, expectations for future rate hikes increased over the last month. Currently, the market is predicting a 70% chance of a 25 basis point increase for the May Fed meeting. A month ago, when the first bank failures hit the market, those odds were 10%. With the positive earnings call out of JPMorgan this morning, I suspect these odds of a 25 basis point hike will increase further.

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Sources:

1.FactSet Research Systems. (n.d.). S&P 500 (Interactive Charts). Retrieved April 14, 2023, from FactSet Database.

2.Bureau of Labor Statistics. 12-month percentage change, Consumer Price Index, selected categories. Updated April 12, 2023. Retrieved from https://www.bls.gov/cpi/

3.Federal Reserve Bank of Atlanta. Sticky-Price CPI. Updated April 12, 2023. Retrieved from https://www.atlantafed.org/research/inflationproject/stickyprice

4.FactSet Research Systems. (n.d.). Policy Rate Tracker (Markets). Retrieved April 14, 2023, from FactSet Database.

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