Earnings Season, Market Volatility & Inflation Data

April 12, 2024

Earnings

First quarter earnings season kicks off this week and has the potential to move the market with large money center banks reporting on Friday. Earning results will be important but even more important will be leadership expectations looking forward. The consensus expectations are for 3% year-over-year earnings growth for companies in the S&P 500.

All Eyes on CPI

On Wednesday morning, the Consumer Price Index (CPI) report was released and showed that the CPI rose 0.4% over the previous month and 3.5% over the prior year in March, an acceleration from February's 3.2% annual gain in prices. The report drove stocks down sharply and sent Treasury yields surging. Treasury yields, which were approximately 4.34% on the 10-year ahead of the report, jumped to over 4.5%. Crude oil rose, while gold was down slightly, yet still near all-time highs at around $2,345. Prices for services, excluding energy, jumped 0.5% and were up 5.4% from a year ago. There’s also another risk in that “base effects,” or comparisons to previous periods, will make inflation look even worse as energy prices in particular are rising after falling around the same time last year.

PPI Comes In Cooler Than Expected

On Thursday morning, the Producer Price Index (PPI) report was released and was viewed more favorably by the markets. PPI rose 0.2% in March from the previous month, a lower rate of growth than economists had forecast. Year-over-year PPI growth was 2.1%, which was also below estimates and is good for the markets.

International Update

Also this week, European stocks reversed earlier gains and moved lower after the disappointing inflation data, despite the positive update from Taiwan Semi (TSM). Subsequently, the European Central Bank (ECB) met Thursday and decided to keep the three key ECB interest rates unchanged.

The Fed

Investors had high hopes that the Federal Reserve would soon starting cutting rates. However, inflation is proving to be stickier than expected. A higher-than-anticipated CPI reading has lowered the probability of interest rate cuts at the Federal Reserve’s meeting in June. Investors are now pricing in two 25 basis point cuts this year.

Where Is The Opportunity?

When market volatility occurs, it is a natural response to want to sell in an effort to stop the losses. However, "buying the dip" is often a better strategy in the midst of market pullbacks for investors with a long-term time horizon.

"During times of volatility it's important to remember time horizon and to rely upon the planning that we've done together. As part of our planning with clients, we seek to align risk and time horizon for different portions of a client's portfolio," said Randy Eveland, CFP, RICP, CDFA®, Wealth Advisor.

If you have specific questions or would like to discuss your own investment strategy or financial planning needs, we welcome you to call us at 302.234.5655 or email us at contactus@covenantwealthstrategies.com to set up time to discuss further.

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This Research material was prepared by LPL Financial, LLC.