Trading This Week After The Slide And Looming CPI

Last week, the major indices entered the week’s trading wound tightly, setting the market up to be vulnerable to a short-term pullback should investors focus on any negativity or uncertainty. This negative catalyst came in the form of increased geopolitical tensions and their possible future ramifications, i.e., higher oil prices, as well as some strong hawkish rhetoric from Fed members. This introduction of uncertainty caused each of the major indices to endure strong selling mid-week, some of which was recovered in Friday’s trading as each index closed higher on the day. The market staged a slight comeback on Friday due to the jobs report being about as good as the markets could have hoped for. Now, despite the mid-week selling we witnessed last week, 76% of S&P 500 stocks are still trading above their 200-Day moving average. This indicates strong and robust participation to the upside by many S&P stocks over a longer period. This is a bullish sign for the market.

This week, investors will pivot from last Friday’s strong jobs report and begin to focus in on some fresh inflation data. This week we will get the CPI & PPI reports for the month of March. February’s CPI & PPI reports each reported higher inflation than anticipated so in line or lower than expected reports would be a positive for the markets. In addition to this, there are some Fed-related events expected this week. This week the Fed Minutes from the March meeting will be released coupled with another schedule featuring a heavy dose of Fed speak. These are sure to draw attention from investors. The most consequential event pertaining to the market’s performance during Q2 will likely be Q1 earnings delivering on expectations. Q1 earnings season gets underway this week in a major way with large-cap Financials like J.P. Morgan Chase & Co. & BlackRock, Inc. set to report their 1^St quarter earnings.

CPI – On Wednesday, the BLS will deliver the new CPI (Consumer Price Index) data for the month of March. CPI is a gauge of price inflation at the consumer level. CPI measures the price inflation that consumers are faced with when purchasing goods or services.
- In the previous month’s report, YoY CPI came in hotter than expected, at 3.2% compared to an expectation of 3.1%. The March YoY number is expected to come in at 3.5%.

PPI – Following Wednesday’s CPI report, on Thursday, we will get the new PPI (Producer Price Index) data from the BLS. PPI is a gauge of wholesaler price inflation. This can be a good indicator of inflation to come as it is measuring the output cost at which producers have sold their goods.
- In the previous month’s report, YoY PPI came in at 1.6%, above the 1.1% expectation. If March’s number can come in either in line with expectations or lower, this will be welcomed.

Fed Minutes– On Wednesday afternoon investors will get their first chance to begin digesting the Fed Minutes from the latest FOMC meeting. After every FOMC meeting and decision, a few weeks later the Fed will release a transcript of their meeting so that investors can get a peek behind the curtain to see the reasoning that led to the recent policy decision. This look into the Fed’s rationale is closely watched as it can provide some helpful context into what the FOMC may do at their next meeting.
- Recently, questions have started to arise about the number of rate cuts the Fed will pursue this year. Because of this, investors will be parsing through the Fed Minutes release to see if there are any clues from the various members’ reasoning that could signal fewer cuts than expected.

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Federal Reserve Watch

Last week brought us a continuation of the barrage of strong hawkish comments from Fed members. The hawkish comments did not appear to have a firm consensus, however they did call in to question how many rate cuts should be expected this year. This was due to Fed members stating their expectations of policy rates cut across a range of zero to three cuts. The only consistent part of their messaging was that the committee will remain data dependent when considering any policy action. This all takes place within the context of the recent ‘dot plot’ release in which the FOMC indicated they plan to cut rates three times by year’s end. The recent hawkish messaging is likely a function of the Fed trying to talk a tougher game in order to keep a handle on consumer sentiment and enthusiasm in the market.

The next FOMC meeting on the calendar is set for May 1^st. Current Fed Funds Futures indicate that the committee is forecast to leave rates unchanged at this meeting. If this is the FOMC committee’s policy decision, they would have five meetings remaining this year in which to accomplish the three rates cuts that they have signaled.

Looking beyond the upcoming FOMC meeting, Fed Funds Futures have now shifted away from indicating that the first cut will occur in June. The market is currently saying that the most likely outcome in June is that the committee will opt to maintain, however the margin is slim. Fed Funds Futures are now more confidently indicating that the first cut will occur at the following meeting in July. The CME’s FedWatch tool now projects a 71.2% probability that the FOMC will cut at July’s meeting.

This Week’s Notable Earnings

Now that the book is finally closed on ’23 Q4 earnings, this week will kickoff the beginning of ’24 Q1 earning season. As is customary, the large-cap Financials will be among the first major companies to report their earnings. This group of Financials will include a number of banks such as J.P. Morgan Chase & Co. as well as other non-bank Financials such as BlackRock, Inc. Joining this group of major Financials reporting this week is Delta Air Lines, Inc.

Q1 earnings season will really kick into high gear this week on Friday morning when the major U.S. Financials begin to report their earnings. Included in this group are three of the largest U.S. banks, in J.P. Morgan Chase & Co., Wells Fargo & Co., & Citigroup Inc. The Financial Sector has had a strong run up in anticipation of Q1 earnings, so the bar is set high for these companies.
- JPM earnings are expected to come in at $4.17 EPS.
- WFC earnings are expected to come in at $1.08 EPS.
- C earnings are expected to come in at $1.20 EPS.

In addition to the major banks mentioned above that will report this week, there are two other significant non-bank Financials that will also report their first quarter earnings on Friday morning. Asset manager, BlackRock, Inc. & major insurer, The Progressive Corp. are set to post their Q1 earnings. BLK & PGR are expected to post YoY quarterly earnings growth of 16.8% & 378.5% respectively.
- BLK earnings are expected to come in at $9.26 EPS.
- PGR earnings are expected to come in at $3.11 EPS.

On Wednesday morning, prior to the opening bell, Delta Air Lines, Inc. will report their latest quarterly earnings. According to analysts’ expectations, DAL is set to grow their YoY Q1 earnings by 40.0%.

DAL earnings are expected to come in at $0.35 EPS.

Thank you for reading this week’s edition of the Weekly Market Periscope Newsletter, I hope you enjoyed it. Please lookout out for the next edition of the newsletter as we will give you a preview of the upcoming week’s important market events.

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