May 1, 2024

Equities markets experienced a rough patch in April declining about 7% with another hot inflation reading indicating that any near-term interest rate cuts are less likely as the Federal Reserve shifts to a higher-for-longer stance.

The Federal Reserve's preferred inflation measure of the "core" Personal Consumption Expenditures index that excludes volatile food and energy prices, came in at 2.8% year over year for March. This was the same level as February but a tenth of a percent higher than expected. Month over month, the measure of inflation rose 0.3%, which was in line with expectations. That data means that it will take a longer string of months of “good” inflation data before the Fed will be comfortable with rate cutting.

The stock markets are now pricing in only a 45% chance of the first rate cut in September after backing away from earlier predictions of a cut in March or June. Before last week, investors were still looking at a rate cut in July, while now the odds are 66% that the central bank will hold rates steady at higher levels.

Powell also dialed back expectations for rate cuts anytime soon, saying it will take longer than expected to achieve the confidence needed to get inflation down to the central bank’s 2% target. His comments marked a departure from earlier assurances that the overall outlook had not changed much despite hotter-than-expected readings in the first two months of the year.

The bright spot was that Powell often said that they will likely start cutting rates before achieving the 2% target indicating a “soft landing” for the economy.

The yield on the 10-year Treasury note has gone up to 4.68%, and the yield on the two-year Treasury yield increased to 4.97%. Through the end of April, the major indices closed lower with the Dow, S&P 500, and NASDAQ at 0.34%, 5.57%, and 4.31%, respectively.

*Disclaimer: This report is a publication of Marchand Faries Financial Management, Inc. Information presented is believed to be factual and up-to-date, but we do not guarantee its accuracy and it should not be regarded as a complete analysis of the subjects discussed.  All expressions of opinion reflect the judgement of the author as of the date of publication and are subject to change.