Closing Stock Market SummaryThe day started on an upbeat note as investors digested the Consumer Price Index (CPI) for March. The S&P 500 and Nasdaq logged gains of 0.6% and 0.9%, respectively, shortly after the open.
Total CPI rose a smaller-than-expected 0.1% month-over-month (Briefing.com consensus 0.3%) and the year-over-year increase slowed to 5.0% from 6.0% in February. Core-CPI, which the Fed closely watches, was in line with month-over-month estimates and accelerated to 5.6% from 5.5% in February.
Early gains dissipated, though, as mega cap stocks rolled over and as Treasury yields also climbed off their post-CPI lows. The 2-yr Treasury note yield, at 4.06% before the CPI report, settled the session at 3.97%. The 10-yr note yield, at 3.44% before the report, settled at 3.42%.
There was a subsequent rebound effort that took root after the S&P 500 dipped below 4,100. The market was moving cautiously forward into the release of the FOMC Minutes from the March 21-22 meeting.
The Minutes revealed that participants agreed that inflation remains too high and that the banking problems increased economic uncertainty. Still, all participants agreed that it was appropriate to raise the target range for the fed funds rate even though the staff economic outlook included a mild recession starting later this year given the potential economic effects of recent banking-sector developments.
Things rolled over again in the late afternoon with mega cap stocks leading that slide. The Vanguard Mega Cap Growth ETF (MGK) declined 0.6% today.
The selling interest was likely also driven more by valuation concerns rather than a negative reaction to the Fed forecasting a mild recession. The cyclical S&P 500 sectors pulled back along with the rest of the market, but still finished the day in a position of relative strength. The industrials (+0.3%), energy (+0.1%), and materials (+0.1%) sectors led the outperformers. The consumer discretionary (-1.5%), communication services (-0.9%), and information technology (-0.6%) sectors were the top laggards, weighed down by mega cap weakness.
Investors may have also been inclined to take some money off the table ahead of Q1 earnings reporting season, which is expected to produce its share of conservative-sounding guidance. The major indices all finished near their worst levels of the day.
- Nasdaq Composite: +14.0% YTD
- S&P 500: +6.6% YTD
- S&P Midcap 400: +2.3% YTD
- Dow Jones Industrial Average: +1.5% YTD
- Russell 2000: +0.7% YTD
Reviewing today's economic data:
- The weekly MBA Mortgage Applications Index rose 5.3% with purchase applications jumping 8.0% while refinance applications were flat.
- Total CPI was up 0.1% month-over-month ( consensus +0.3%) following a 0.4% increase in February. Core-CPI, which excludes food and energy, increased 0.4%, as expected, following a 0.5% increase in February. Services inflation was up 0.3% month-over-month, versus up 0.5% in February, and up 7.3% year-over-year versus up 7.6% in February. Excluding shelter, services inflation was flat, compared to a 0.1% increase in February, and up 6.1% year-over-year versus up 6.9% in February. On a year-over-year basis, total CPI was up 5.0%, versus up 6.0% in February. That is the smallest 12-month increase since May 2021. Core-CPI was up 5.6% year-over-year, versus up 5.5% in February.
- The key takeaway from the report is the disinflation seen in March. That trend doesn't necessarily take a rate hike at the May FOMC meeting off the table, especially with core-CPI tipping slightly higher, but it is fostering a belief that a rate hike in May could be the last hike in the Fed's tightening cycle.
- The weekly EIA Crude Oil Inventories showed a build of 0.597 million barrels versus last week's draw of 3.74 million barrels.
Looking ahead to Thursday, market participants will receive the following economic data:
- 8:30 a.m. ET: March Producer Price Index ( consensus +0.1%; prior -0.1%) and core Producer Price Index (consensus +0.2%; prior 0.0%)
- 8:30 a.m. ET: Weekly initial jobless claims ( consensus 236,000; prior 228,000) and continuing claims (prior 1.823 million)
- 10:30 a.m. ET: Weekly EIA Natural Gas Inventories (prior -23 bcf)