Week in Review: March 15, 2024

March 18, 2024

Recap & Commentary

Markets ended the week lower weighed down by US inflation data which showed a continued upward resurgence in prices.  While the broader narrative that the Fed will enact rate cuts later this year remained intact, expectations regarding the timing of cuts continued to shift.

Prior to the release of February inflation data, markets were pricing in a 26% probability that the Fed will leave rates unchanged from current levels at its June meeting. By the end of the week, those odds had increased to over 40%.  Should economic data released in the weeks ahead continue to show reasonable strength, it is possible that market expectations for the Fed’s first rate cut could shift from June to July. Investors will gain further insight into the Fed’s thinking this week when policymakers release their updated rate forecasts.

The release of February inflation data and shifting expectations regarding the expected timing of the Fed’s first rate cut helped push interest rates higher, with the 10-Year Treasury yield gaining a little over 0.20%. That in turn drove bond prices lower resulting in the Bloomberg US Aggregate Bond index experiencing its largest decline since October.

With first quarter earnings season complete, for the time being, investors will be left to focus on, and wrestle with, how incoming economic data might affect future monetary policy actions. Should markets begin to question the current thesis that the Fed will begin cutting rates later this year, that could spur bouts of volatility and present a headwind to both equity and fixed-income returns.

Economic Commentary

Economic data, headlined by the February CPI report, was generally worse than anticipated last week. Headline CPI came in as expected, at an elevated 0.4%. Energy prices increased 2.3%, while food was unchanged. Excluding these measures, Core CPI matched January’s increase of 0.4%, vs. expectations for 0.3%. Core prices declined from 3.9% to 3.8% from a year ago. Housing inflation was responsible for a third of the index’s rise, though showed some signs of cooling, as the category fell to 0.4% vs. January’s 0.6% increase. The Fed has prioritized a measure of inflation known as “Super Core”, which excludes housing, and is a good gauge for prices in the services sector. That measure increased 0.5% during the month, after a large 0.8% increase in January.  Year over year, Super Core increased 4.3%. In a blow to consumers, the jump in prices contributed to a 0.4% decline in real average weekly earnings. On the producer side, prices were also hotter than expected.  PPI rose 0.6% in February, twice the consensus forecast of 0.3%. Goods prices increased 1.2% after several months of outright price declines.  Services increased 0.3%, down from January’s 0.5% increase.

February retail sales rose 0.6%, lagging the 0.8% forecast.  Sales grew 1.5% year over year. Core sales, a key component in GDP calculations, increased just 0.1% during the month. Prior months’ sales figures were also revised significantly lower indicating prior spending was weaker than initially reported.

Of Note

Without admitting any wrongdoing, the National Realtors Association agreed to a $418M settlement that would effectively eliminate the standard 6% commission that many home sellers currently pay. Moving forward buyers and sellers will now be able to negotiate fees with their agents up front.  The change is expected to result in lower transactions costs.

Market Indices   (As of 03/15/2024)

• Housing Starts
• Existing Home Sales
• Manufacturing PMI
• Services PMI
• Weekly Jobless Claims