A hot inflation print in the form of Wednesday's Consumer Price Index caused stocks to sag and bond yields to rise once again.
Markets had essentially traded sideways in the early days of April as market participants recalibrated their bets on when the Federal Reserve will begin cutting interest rates. Although the central bank remains committed to three cuts in 2024, sticky inflation, a robust labor market and strong economic growth have pushed back expectations for when the Federal Open Market Committee (FOMC), the Fed's rate-setting group, will start easing.
As a result, Wednesday's release of the Consumer Price Index (CPI) had a huge impact on the market's thinking. Experts say a data-dependent Federal Reserve will likely push back the timing of its first interest rate cut after the CPI revealed that inflation accelerated sharply last month. Some experts contend three cuts are off the table for 2024.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Headline inflation rose 0.4% in March, the Bureau of Labor Statistics said Wednesday, exceeding economists' forecast for a 0.3% increase. On an annual basis, headline inflation increased 3.5%. That was up from 3.2% a month ago and topped estimates for a 3.1% print.
Core CPI, which strips out volatile food and energy costs and is considered a better predictor of future prices, hit 0.4% month-to-month – just as it did the preceding two months. Economists were looking for core prices to increase just 0.3%. On an annual basis, core CPI rose 3.8%, as it did the prior month, vs expectations for a 3.7% increase.
Fed Chair Jerome Powell and the Federal Open Market Committee (FOMC) are looking for sustained evidence that inflation is down to 2% before they move to cut interest rates from a 23-year high. The latest CPI report likely changes their calculus, meaning it could be a while longer before we get monetary easing out of the next Fed meeting. Some expert commentary on the CPI report contends that three rate cuts in 2024 are now off the table.
"Today's inflation figures likely close the door on a June rate cut, but the Fed is still highly motivated to get the cutting cycle started this year," says Lauren Goodwin, economist and chief market strategist at New York Life Investments.
As of April 10, futures traders assigned a 15% probability to the first quarter-point cut coming in June, down from 56% a day ago, according to CME Group's FedWatch Tool.
At Monday's close, the blue-chip Dow Jones Industrial Average was down 1.1% at 38,460, while the benchmark S&P 500 was 1% lower at 5,160. The tech-heavy Nasdaq Composite slumped 0.8% to 16,170.
Earnings season on deck
While this week's earnings calendar is relatively light, Friday's results from several big banks, including JPMorgan Chase (JPM), Citigroup (C) and Wells Fargo (WFC), mark the start of the first-quarter reporting season.
As for JPM, a consensus Buy-rated Dow Jones stock, analysts, on average, expect the money center bank to report earnings of $3.88 per share (-5.4% YoY) on revenue of $38.8 billion (-1.4% YoY).
"Global U.S. banks are likely to see a sequential improvement in March versus December results, but year-over-year comparisons are likely to be flat to lower," says CFRA Research analyst Kenneth Leon.
Leon thinks that higher interest rates will boost net interest income – a key measure of profitability for banks that shows the difference between revenue made on loans and the costs paid for deposits – while a healthy economy bodes well for loan volume growth, credit card transactions and commercial services.
JPM has one of the best chances among big banks to deliver better-than-expected Q1 results, Leon says, adding that the Dow Jones stock "has done well, and we think there is more room to run with a healthy U.S. economy and consumer, low unemployment, and stable credit."
Nvidia bucks a down day
In single-stock news, Nvidia (NVDA) rallied 2% in a down market, but that may have been more due to technical, rather than fundamental, reasons.
The leading maker of chips for generative AI data centers has been one of the most important members of the Magnificent 7 stocks that drove much of the recent bull run. However, on Tuesday, NVDA stock briefly entered correction territory – or a 10% pullback from its most recent high – after Intel (INTC) unveiled a competing product, an AI chip called Gaudi 3.
Wednesday's rebound, likely led by technicians and bargain hunters, helped NVDA end the session in the green, but shares have come under pressure the past couple of weeks. Nevertheless, Nvidia remains one of the best stocks of all time. Anyone who put $1,000 into Nvidia stock 20 years ago would be very happy with their returns today.
Related content
- Best Dividend Stocks for Dependable Dividend Growth
- Cities with the Highest Average Home Prices
- How to Spot a Bubble
-
Stock Market Today: The Dow Leads an Up Day for StocksBoeing, American Express and Nike were the best Dow stocks to close out the week.
-
Six Missteps to Avoid as You Transition to RetirementDon't lose sight of your finances when you finally reach retirement. These six classic missteps can chip away at the nest egg you’ve worked so hard to build.
-
Why Does One Claim Jack Up My Insurance After Years of No Claims?Even loyal customers can be hit with an insurance premium hike after a claim, despite going many years without any claims. There's a reason for that.
-
Stock Market Today: Stocks End Higher in Whipsaw SessionThe main indexes were volatile Thursday with Nvidia earnings in focus.
-
What's Next for MicroStrategy Stock as Bitcoin Nears $100,000?MicroStrategy stock is up more than fivefold in 2024 thanks to a furious rally in bitcoin. Here's what you need to know.
-
BJ's Wholesale Pops on Membership Fee Hike, Stock BuybacksBJ's stock is rallying Thursday after the warehouse club raised its membership fee for the first time in seven years and unveiled a big stock buyback program. Here's what you need to know.
-
Why Snowflake Stock Is Still a Buy After EarningsSnowflake stock is surging Thursday after cloud company beat expectations for its third quarter and raised its full-year outlook. Here's what you need to know.
-
To Future-Proof Retirement Security, We Need Better StrategiesWith retirees living longer and the inequalities that affect women and people of color, the retirement system needs some optimization. Here’s what would help.
