Inflation’s rate of change reversed course in March, a broadly positive economic signal lost in prevailing tariffs-and-trade-war noise. Investors, traders and speculators confront potentially market-moving questions about the forward-looking value of backward-looking data on a regular basis now.
With a little less than a month until the next Fed meeting, the backward-looking kind — in addition to daily price action — is the only hard incoming data we have.
Ahead of Thursday’s opening bell, the Bureau of Labor Statistics said the Consumer Price Index (CPI) decreased by 0.1% in March, reversing course after a 0.2% increase in February. Annual CPI measured 2.4% vs 2.8% in February.
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Core CPI – which excludes volatile food and energy prices – rose by 0.1% but decelerated from 0.2% in February. Core CPI cooled to 2.8% on an annual basis from 3.1% last month.
“As with other data points we’ve discussed recently,” writes BlackRock’s Rick Rieder, “the economic and market landscape is changing so rapidly that a month delay essentially renders data obsolete, or at least less meaningful than used to be the case.”
Weaker-than-expected incoming data “says little about where inflation might be heading in the year ahead and why upside risks are a concern.” While “these figures are in line with the story of moderating inflation,” Rieder emphasizes “the real concern for the months ahead” is “slower growth and higher inflation.” That’s what’s commonly referred to as stagflation.
Investors, traders and speculators will certainly pay close attention to the economic calendar for Friday’s 10 a.m. ET release of preliminary University of Michigan Consumer Sentiment Index results for April.
Survey data is relatively soft, but market participants will be eager to know how policy uncertainty and the recent stock market sell-off are impacting people and their employment and inflation expectations. After a solid jobs report for March, the BLS will release nonfarm payroll numbers for April on May 2.
The Cboe Volatility Index (VIX) opened at 34.44, which proved its intraday low, and peaked at 54.87. The “fear gauge” settled at 44.01, up from 33.62 Wednesday. A normal level for the VIX is somewhere in the range of 12 to 20.
At the closing bell, the blue-chip Dow Jones Industrial Average lost 2.5% to 39,593. The broad-based S&P 500 Index fell 3.5% to 5,268. And the tech-heavy Nasdaq Composite sagged 4.3% to 16,387.
But wasn’t it really the bond market
Treasury Secretary Scott Bessent set the marker months ago — a couple of days after we explained why the 10-year U.S. Treasury yield is so important to the global financial system, your portfolio and your pocketbook.
And the 10-year U.S. Treasury yield has spoken. According to The Wall Street Journal, Bessent “helped persuade the president to take time to negotiate with trading partners in the face of pressure from business leaders” following “the plunge in the stock and bond markets.
As the WSJ reports, Trump “absorbed the bad news about a plummeting bond market. “I saw [Tuesday] night where people were getting a little queasy,” the president said Wednesday. “A sustained campaign by executives, lawmakers, lobbyists and foreign leaders” led to the 90-day tariffs moratorium.
Writes Louis Navellier of Navellier & Associates in his daily note, “The bond market continues to be very interesting. The 2-year U.S. Treasury yield is down a huge 14 basis points to 3.81%, falling 5 basis points on the CPI data.” The yield on the 2-year Treasury got up near 4% just ahead of Trump’s tariffs-pause post on Truth Social around 1:30 p.m. ET on Wednesday.
“So,” Navellier observes, “people feel that it was the disruption of the bond market that led Trump to postpone tariffs.”
The yield on the 10-year U.S. Treasury note was down to 4.398% Thursday after getting up to 4.515% Wednesday. “Notable,” Navellier says, “is that the 30-year yield is higher today. Thirty-year mortgages are back to 7.0%.”
Listen to the power people
The earnings calendar is about to get a lot more impactful and interesting, and fast, with an important set of companies lined up to report starting Friday morning.
That includes CEO Jamie Dimon’s JPMorgan Chase (JPM, -3.1%). Dimon is one of the CEOs whose message about the impact of his tariffs policy reached the president.
It’s not the numbers that matter anymore when it comes to individual companies. It’s all about the conference-call commentary. “On the earnings front,” Navellier wrote in his Thursday note, “we had our first look at what tariffs might bring.” CarMax (KMX, -17.0%) stock crashed Thursday after it reported “a small beat on the top and a meaningful miss on the bottom.”
CarMax suspended its guidance on uncertainty about the impact of tariffs on new autos and, thus, used-car prices. “We will likely see more companies suspending guidance,” Navellier said.
Big banks on deck
In addition to JPMorgan, Morgan Stanley (MS, -4.6%) and Wells Fargo (WFC, -4.8%) will report first-quarter numbers before Friday’s opening bell. Goldman Sachs (GS, -5.3%) comes next in the lineup of financial stocks on the earnings calendar Monday morning.
Betsy Graseck, global head of banks and diversified finance research at Morgan Stanley, recently lowered her rating on large-cap banks from Attractive to In-Line due to increased tariffs-related policy risk. She notes that she is not downgrading to Cautious, “as negotiations could occur, reducing risks and stabilizing markets.”
At a macro level, Graseck has adjusted her Base Case to “a significant GDP slowdown.” And the risk of her “Bear Case” recession scenario is “rising sharply.”
Graseck expects slower GDP growth and rising economic uncertainty to stifle a market rebound, slow loan growth and lead to rising bad-loan provisions.