Markets ended positive for the week as energy and technology shares rallied and trade war tensions eased on all sides. These developments paired with earnings reports showing continued strength across all sectors drove stock markets higher. The S&P 500 rose 2.0% last week. The global MSCI ACWI climbed 1.6%. The Bloomberg BarCap Aggregate Bond Index dipped 0.2% as inflation risk and the odds of additional rate hikes increased.
Key points for the week
- Inflation and interest rate risk continue to rise.
- Consumer Price Index numbers indicate inflation pressure continues.
- Odds of four hikes are now nearly 40%.
The personal consumption expenditures (PCE) index continues to climb toward the Fed’s stated 2% inflation target. For the month of March, core PCE rose 1.96% from a year ago. Another underlying inflation gauge, the Consumer Price Index (CPI), increased 2.4% from a year ago, the largest increase since February 2017. Producer prices, health care, and rent increased steadily in March, and the tight labor market will likely lead to increased wage inflation going forward. Based on the numbers, investors are pricing in the probability of a rate hike in June, and the odds of four hikes in 2018 rose to nearly 40%.
Clearly, the Fed is anticipating reaching its goal. Even though there has only been one month when inflation increased above 2% in recent years, the Fed has raised rates five times in the last 16 months. The Fed’s concern is leaving rates too low will encourage financial distortions that cause the next bear market.
Fun story of the week
A Shell gas station in Atlanta has decided to hire valets to pump gas for its customers. These 1950s-style valets will pump gas, wash windows, and even bring customers their receipts, while they wait in the comfort of their cars. Meanwhile, Oregon lawmakers recently passed a law to allow self-service gas stations in rural areas. Rural Oregonians used to valet service aren’t very happy about the law, which could lead to a new Oregon Trail leading right to Atlanta.
This newsletter was written and produced by CWM, LLC. Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.
S&P 500 INDEX
The Standard & Poor’s 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.
MSCI ACWI INDEX
The MSCI ACWI captures large- and mid-cap representation across 23 developed markets (DM) and 23 emerging markets (EM) countries*. With 2,480 constituents, the index covers approximately 85% of the global investable equity opportunity set.
Bloomberg U.S. Aggregate Bond Index
The Bloomberg U.S. Aggregate Bond Index is an index of the U.S. investment-grade fixed-rate bond market, including both government and corporate bonds.