The Dow (+2.7%), NASDAQ (+4.1%) and S&P 500 (+3.7%) snapped a three-week losing streak by exhibiting solid gains last week. Meanwhile, taxable bonds and tax-free municipal bonds didn’t fare as well, as they fell about 0.4% - 0.8%. These drops were in response to Treasury yields rising for the fifth week in a row, with the 10-year Treasury yield ending the week at 3.32%. These yields may have increased in response to the Eurozone raising interest rates last week by 0.75% to combat inflation of their own.
Other than that, there really wasn’t much economic news last week, as investors returned from the holiday-shortened weekend. Some speculate that investors are hopeful that this week’s inflation data will be tamer than expected and that the Fed will raise rates next week by only 0.5%, rather than 0.75%. Two key measures of inflation are scheduled to be reported this week. The Consumer Price Index (CPI) will be reported on Tuesday, while the Producer Price Index (PPI) will be reported on Wednesday. The CPI is expected to come in at about 8%, slightly lower than last month because of reduced energy prices, but still pretty high, nonetheless. Excluding energy and food, the core CPI is expected to increase over the prior month. Thus, I can’t see the Fed backing off from raising rates by 0.75%, particularly after their comments a couple weeks ago. This week’s economic reports will set the stage for next week’s Fed meeting, so let’s see how the numbers look. Lower inflation is good for the economy and the markets.
The views stated in this letter are not necessarily the opinion of Cetera Advisor Networks LLC and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.