Market React With Dip After CPI Surprise Fuel Rate Hike Fears.

We saw the market experienced significant declines on 10 April after the unexpected rise in the March Consumer Price Index (CPI) had its strong influence on traders and investors alike.

Total CPI saw a month-over-month increase of 0.4%, surpassing the anticipated 0.3% rise. Similarly, the core-CPI, which omits food and energy costs, also climbed by 0.4% against the forecasted 0.3%.

The increase in CPI numbers also led to Treasury Yields jump, with the 10-year note yield escalating from 4.35% to 4.54% and the 2-year note yield rising by 22 basis points to 4.97%.

There have been concerns regarding the Federal Open Market Committee's (FOMC) ongoing strict stance on monetary policy, the strong CPI report has heightened this concerns and cause investors to adjust their expectations for future rate cuts.

As indicated by the CME FedWatch Tool, the likelihood of a rate reduction at the June FOMC meeting has dramatically decreased from 57.4% to just 16.8%. We have seen the market was initially optimistic about six rate cuts by the end of 2024, but expectations have now been adjusted down to only two.

The CPI economic data has caused an impact which has a widespread across the stock market, we can see that there are only a handful of sectors making positive gains which is on the lower range as well.

This is on top of the remarkable performance this year by these stocks, with META up by 46.9%, AMZN by 22.4%, NVDA by 75.8%, and LLY by 30.7%. Year-to-Date Performance for S&P 500 at +8.2%, Nasdaq Composite at +7.7%, S&P Midcap 400 at +5.9%, Dow Jones Industrial Average: +2.1%.

The economic data presented on 10 April 2024 provided mixed signals, with the Weekly MBA Mortgage Applications Index slightly increased by 0.1%, following a -0.6% reading last week.

Both March CPI and Core CPI outpaced consensus estimates, each rising by 0.4%. The year-over-year headline CPI acceleration could signal continued FOMC hawkishness, affecting June rate cut expectations. February's Wholesale Inventories matched expectations at 0.5%, showing an increase from January's 0.3%.

We should watch these key economic indicators later including Thursday (March's Producer Price Index (PPI) ) and weekly jobless claims, alongside updates on natural gas inventories and global market performances in Europe and Asia.

Meanwhile, we should looked at the household buying power over the past year as a silver lining, this mean that the average worker’s “real” hourly earnings increased 0.6% from March 2023 to March 2024. It had earlier declined for two years during the Covid-19 pandemic as high inflation eroded workers’ paycheck growth, but that trend has since reversed.

Gasoline prices increased 1.7% from February to March, the Bureau of Labor Statistics said. This figure is adjusted to account for seasonal buying patterns. Average U.S. pump prices were $3.52 a gallon on April 1, up from $3.35 on March 4, according to weekly data published by the Energy Information Administration.

The increase is largely attributable to higher oil prices. They have firmed amid a generally positive outlook for the global economy, meaning greater global oil demand, and controlled output among major oil-producing nations, meaning there hasn’t been a glut of oil, economists said.

We have seen nonfarm payrolls increased 303,000 for the month, well above the Dow Jones estimate for a rise of 200,000. The unemployment rate edged lower to 3.8%, as expected, even though the labor force participation rate moved higher to 62.7%.

Wages rose 0.3% for the month and 4.1% from a year ago, both in line with Wall Street estimates. Health care led with 72,000 new jobs, followed by government (71,000), leisure and hospitality (49,000), and construction (39,000).

If we looked at how market has reacted to the surge in CPI, it could be a combination of CPI and also the strong job data that rate cut might turn into a rate hike.

While there are things that might not be under our control, I believe as investors, we should be relooking into our strategy and portfolio, and see how things have moved in relation to economic data.

Strong and good tech stocks are still very much able to shoulder the impact by strong economic data, but we need to keep in mind that market sentiment as a whole could impact the stock price, even though a stock can be deemed ‘ good’ or potential.

Appreciate if you could share your thoughts in the comment section whether you think market will start to realize that stronger CPI and job market might not be a bad thing?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.