Markets Fall On High CPI, Rate-Cut Speculation

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It’s been an eventful trading day. That’s the kind way of putting it. From this morning’s pre-market trading prior to the March CPI report, we came crashing down more than -500 points on the Dow before the opening bell, then lost -1.09% by the close. The S&P 500 dropped another -0.95%, and the Nasdaq fell -0.84%. The Russell 2000 really fell off a table today, -2.52%. From late March highs, the small-cap index has shed more than -5.3%, which is the worst of the four main indices.

That said, trading today wasn’t as gruesome as it may seem. Looking at today’s charts, once the bad news hit the tape there wasn’t a lot of movement up or down; things stayed relatively range-bound. That’s not much consolation to market participants looking to ride stocks higher, but at least the numbers didn’t keep getting worse. It also supports the idea that it was really the high CPI print from today — and what it means for a June interest rate cut — and nothing else that took out this Hump Day’s trading at the knees.

Keep in mind, this had been an historically strong market, year to date. For the Dow and the S&P, they first hit new all-time closing highs in 2024 back on February 22nd, and by late March the S&P was above 5250 for the first time in its history. The three rate cuts this year reiterated by the Fed in its latest dot-plot following the March 20 Federal Open Market Committee (FOMC) meeting seemed to all but guarantee that mid-year start to lower interest rates. Now that calculus has gone sideways.

Not that the Fed wasn’t already concerned. In the minutes of the latest FOMC meeting, out this afternoon by chance, members were expressing concern that inflation had not been moving lower faster. They also vowed to not cut rates until they had “gained greater confidence” that inflation was headed back toward 2%. Geopolitical strife had helped boost oil prices higher, and the price at the gas tank has indeed gone up for Americans. The Fed experienced “uncertainty at the persistence of high inflation.”

So no, you’re not crazy to be concerned about this. Right now, however, a coming-to-terms of fewer than three rate cuts is basically the equivalent of taking our medicine. June is now unofficially off the table as far as Wall Street is concerned, with the July meeting looking increasingly suspect. These aren’t easy realizations for the market to absorb, especially coming off such high levels only a couple weeks ago. The markets charged in March, but April looks like it’s for fools, at least so far.

Tomorrow brings us fresh data to ponder. The March Producer Price Index (PPI), the wholesale print to the CPI’s retail, comes out ahead of the opening bell Thursday. Here we’ve seen figures much closer to the 2% optimal interest rate, even below it: +1.6% year over year, as of February. Perhaps we’ll see a jolt here, as well, with energy prices doing their thing based on Mid-East turmoil. But perhaps we’ll also get a reminder that inflation has come down precipitously from the summer of a couple years ago without crashing into recession. And that may be worth holding onto.


More By This Author:

Markets Coming To Terms With Limited Rate Cuts In 2024
Markets Slide Further From Last Week's Highs; JOLTS Up Slightly
Markets Pull Back To Start A Fresh Quarter

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