Stocks Mixed on Inflation Reports; Bonds Surge

Good morning,

The Dow (-0.5%), NASDAQ (+3.2%), and S&P 500 (+1.6%) were mixed for the week, as technology stocks led the way.   Meanwhile, bond prices exhibited a strong week, as taxable bonds gained about 1.3% and tax-free municipal bonds gained about 0.7%.  The 10-year Treasury fell 0.22% to finish the week at 4.21%.

The focus of the markets last week was on inflation data (Consumer Price Index [CPI] and Producer Price Index [PPI], and the Fed’s latest policy meeting, which is held roughly every 6 weeks).  These policy meetings define if and how much the Fed will raise or lower interest rates, and are followed by the Fed Chairman Powell speech, which is dissected by the investor community.  It’s crazy how they pick apart every word, too!  A few times a year, they also produce the “dot-plot” which shows how each Fed committee member projects their expectation of interest rates throughout the year and coming years.  Thus, that is viewed by investors as to what the committee members are also thinking.

The CPI data came out Wednesday morning and revealed that inflation was below expectations, and that was greeted with investor enthusiasm, sending markets up sharply that day.  The PPI data followed, and also showed that inflation values were below investors’ expectations.  Lastly, the Fed left interest rates unchanged, but the dot-plot implied that the Fed committee members project that there will be only one rate cut in 2024.  That is less than the three rate cuts previously predicted by the Fed in March, and the six rate cuts factored into the bond market.  There can be multiple interpretations of this data.  Lower inflation is good for the economy, but resistance by the Fed to lower interest rates suggests that the Fed is not convinced that inflation will go down quickly to their target rate of 2%.  Regardless of the multiple interpretations, investors clearly applauded these data, as both stocks and bonds rallied on the news.   See the chart below that shows the overall CPI has stalled in the 3+% range for the past year, and not progressing toward the Fed target of 2%.

Please note that our office will be closed today, as we are hosting our 4th annual charity golf outing, and all staff members will be working the outing.  So please be patient if you try to reach us on Monday.  If it’s urgent, please feel free to call any one of us on our cell phones.  Have a great day and terrific week! 

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