What Wall Street Wants to See From This Week’s Inflation Reports Dear Reader, Earnings season is almost here!
We’re just a few short days from the official start to the first-quarter earnings season on Friday. This earnings season is expected to be a good one; analysts are calling for S&P 500 earnings to grow 3.2% in the first quarter, according to FactSet. Revenue is anticipated to rise 3.5%. Seven of the 11 S&P 500 sectors are forecast to post year-over-year earnings growth and eight sectors are estimated to post year-over-year revenue growth.
However, before Wall Street turns its attention to earnings, it will first focus on two very important inflation reports: the Consumer Price Index (CPI) and Producer Price Index (PPI) readings for March.
The CPI will be published Wednesday morning. Economists project headline CPI and core CPI, which excludes food and energy, to rise 0.3% in March, down from 0.4% in February. CPI is also expected to rise 3.5% in the past 12 months, while core CPI is forecast to increase 3.7% year-over-year.
The latest PPI will be released Thursday morning. Currently, economists expect the PPI to come in at 0.3% in March, down from 0.6% in February.
I expect Wall Street to obsess over the inflation data as it always does, but the fact of the matter remains that we do need to see inflation fall in order for the Federal Reserve to cut key interest rates. (I’m holding a special Election Shock Summit tomorrow, April 10, at 8 p.m. Eastern time to explain why this is important for the stock market. A special guest will be joining me to share his thoughts as well… including the steps you need to take before May 1. Reserve your seat now by clicking here.) You may recall that in February CPI rose 0.4%, and it was up 3.2% in the past 12 months. Core CPI also rose 0.4% last month and was running at a 3.8% annual pace, down from 3.9% in January. Economists expected core CPI to rise 0.3% in February and to be up 3.7% annually.
Meanwhile, headline PPI increased 0.6% in February, which was double economists’ estimates for a 0.3% rise. Headline PPI is now up 1.6% in the past 12 months. Core PPI, which excludes food, energy and trade margins, was up 0.4% in February and up 2.8% in the past 12 months. That also doubled economists’ expectations for a 0.2% rise.
I should also add the core Personal Consumption Expenditures (PCE) index, the Fed’s favorite inflation indicator, rose 0.3% in February and is now running at a 2.8% annual pace. What was particularly surprising was that the January core PCE was revised up to a 0.5% increase, up from 0.4% previously reported. The PCE, which includes food and energy, rose 0.3% in February and is up 2.5% in the past 12 months. Are Rate Cuts Required This Year? During Fed Chairman Jerome Powell’s speech at Stanford Business School last Wednesday, he said the Fed still has time to access the recent inflation data before deciding when to start cutting key interest rates.
Powell stated that recent higher-than-expected inflation data did not “materially change” the overall picture and reiterated that it will likely be appropriate to start lowering key interest rates “at some point this year.”
Regarding the Fed’s reaction to the core PCE, Powell commented, “It is good to see something coming in line with expectations.”
The stock market rallied on Thursday morning in the wake of Powell’s comments. However, on Thursday afternoon, the stock market did an abrupt “about face” after Minneapolis Fed Bank President Neel Kashkari said that he penciled in two rate cuts this year, but that if inflation continues to stall, none may be required this year. Specifically, he said, “If we continue to see inflation moving sideways, then that would make me question whether we need to do those rate cuts at all… There’s a lot of momentum in the economy right now.”
I like Neel, but I was not happy with his comments. I still believe a key rate cut is still coming in June. You see, the Eurostat on Wednesday announced that consumer inflation in the eurozone declined to a 2.4% annual pace in March, which was lower than economists’ consensus forecast of 2.5%. This decline in consumer inflation from a 2.6% annual pace in February, is setting the stage for a key interest rate cut by the European Central Bank in June. I expect the Bank of England and the Fed will also cut key interest rates in June in a coordinated rate cut by major central banks.
We’ll learn more during the May Federal Open Market Committee (FOMC) meeting, scheduled for May 1. I am particularly interested in what Powell will say during the press conference. A friend, who is also an experienced analyst, predicts Powell will say six words that could have a massive impact on not only the stock market but the presidential election.
I don’t want you to be blindsided, so I’m holding a special Election Shock Summit tomorrow (it will start at 8 p.m. Eastern time). My friend will also be joining me, as he has a way to not only protect your portfolio but grow it in a chaotic market. Click here and register for the Election Shock Summit event now. You have only one more day to reserve your spot. Sincerely, |
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