Stocks down, Bonds up on mixed Economic Reports

The Dow (-0.9%), NASDAQ (-1.2%), and S&P 500 (-0.3%) each exhibited losses last week.  Meanwhile, taxable bonds were roughly flat to up 0.5% and tax-free municipal bonds gained about 0.4%.  The 10-year Treasury yield fell 0.14% to finish the week at 4.08%, representing the uptick in bond prices.

For the second week in a row there was a mixed bag of economic data, however this time the indices fell as investors’ concerns of economic slowing are beginning to show. The ISM Services index and Prices both fell last week, however the ISM Services index still remains in a territory depicting US expansion. This is the 14th straight month that the index has indicated growth, with the last contraction being in December 2022. The decline in Prices is a welcomed sign for investors hoping to see the Fed cut interest rates in the near future, as it may indicate that the hot January price report may have been an anomaly.  The forward-looking New Orders component and the Labor Report both increased in February; however, the January Labor Report was revised lower to 229,000. Layoffs were also reported to be the highest for that month since 2009, and the unemployment rate rose slightly. This data would seem likely to lead the Fed to consider cutting interest rates, however with wage growth continuing to increase they may continue to hold off for now.

This week we have two important pieces of inflation data being released with the Consumer Price Index (CPI) being reported on Tuesday and the Producer Price Index (PPI) coming out on Thursday. With the higher-than-expected inflation prints in January, the market and Fed will be keeping a close eye on these two reports this week. As Fed Chairman Powell said in his testimony last week in front of Congress, the Committee wants to see more data that inflation is continuing to cool before they consider lowering interest rates. As a student of the 1970s, Powell understands the consequences of lowering rates too soon, as it could allow inflation to increase again.

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