Week of April 17, 2023

With a lot of economic data to digest by investors the S&P 500 posted its 4th gain out of the last 5 weeks, up 0.82%.  For the week, the Dow Jones Industrial Average was up 1.20% and the Nasdaq was up 0.89%. 

The Consumer Price Index, measuring the costs for goods and services in the U.S. increased 0.1% for the month of March and 5% year over year.  The report beat the Dow Jones estimate for a 0.2% monthly increase and 5.1% year over year.  Core CPI came in at estimates, which excludes food and energy, increasing 0.4% for the month and 5.6% on an annual basis.  After the release of the CPI report, the chief economist at LPL Financial said, “As the economy slows consumer prices will decelerate further and should bring inflation closer to the Fed’s long-run target of 2%.”

On Thursday, the March Producer Price Index report also surprised investors with a much better reading than was expected.  For the month, economists were expecting the report to come in flat, however there was a decline of 0.5%.  Excluding food and energy the index declined 0.1% for the month, beating estimates of a 0.2% increase.

However, all eyes are still on the Federal Reserve and how they will respond to the positive developments for inflation.  It is widely expected that they will raise interest rates at their next meeting in May by 25 basis points.  Some economists are expecting them to pause after that rate hike.  Chicago Federal Reserve President Austan Goolsbee commented, “When you see the producer prices coming in as big negative numbers and you see these negatives on retail sales, you don’t want to overreact to short-run news, but it feels like that’s moving in the right direction.”

Retail sales were reported weaker than expected, declining 1% last month, fueling recession fears.  According to Atlanta Fed, Gross Domestic Product is tracking at 2.2% annually for the first quarter, although many analysts are expecting a contraction later this year.

This week, earnings for the first quarter will continue to be reported after Wells Fargo and JP Morgan Chase beat expectations last week.