Economy
Inflation fell more than expected in March, bringing the annual CPI rate to 2.4% and core CPI to 2.8%. Core prices (which exclude food and energy) rose at the slowest rate in 4 years. Core CPI removes the volatility of food and energy prices that can be impacted by things outside the Fed's control (bird flu, oil prices, etc.), so it's nice to see a little progress here as things had been moving in the wrong direction for the last several months. There are concerns, however, that inflation could reaccelerate if companies impacted by tariffs pass on the increased costs to consumers.
And speaking of tariffs... what a wild weak this was. The tariffs went into full effect for about 12 hours before President Trump announced a 90-day pause while setting a broad 10% tariff on just about everyone except China, which we continue to see a back-and-forth escalation with. Sticking with economic news for a bit, there have been concerns about the risk of recession increasing if the tariffs stay on. We've not yet seen layoffs in the private sector move higher, and an increase in initial jobless claims could be an early indicator of a brewing storm. It's hard to believe we're currently in a recession as some have claimed due solely to the fact that the labor market remains strong, but that's a situation to keep an eye on.
Markets
After falling by 9% last week, the S&P 500 staged a bit of a comeback. As good of a week as it was for the market, it was a literal roller coaster. Monday morning there was a fake news report that the tariffs had been paused for 90 days. The market initially shot higher by nearly 8% before the report was shot down by the White House. The market then dropped lower by 5%. All of this happened within an hour, and the market would finish the day nearly flat. Then we opened up way higher by 4% on Tuesday, but throughout the day the rally lost steam and we finished the day down 3%.
Wednesday saw President Trump's 90-day pause announcement, and we had one of the best single days in the market ever. The S&P 500 finished the day up nearly 10%. We gave back about half of that Thursday. Why? Good question. There wasn't any new news or tariff-related announcements that stood out. Profit taking might be as good of a reason as any. Then Friday the market rally continued, and we finished up about 2%. If you were keeping up with the math on all of this, that brings us to a weekly gain of 5.7%.
One other story of note here is the rise in the 10-year treasury rate. On Monday rates dipped below 3.9% briefly, and by Friday afternoon we were hovering just shy of 4.6%. If you own bonds (which you likely do if you are a client of the firm) you would have likely seen negative returns in your bond allocation this week. One theory on why rates moved higher is that foreign holders of our debt (Japan owns $1.1 trillion, and China owns $800 billion) are dumping their holdings. There was a rumor that China was selling treasuries to drive rates higher ahead of this week's treasury auction. Higher rates at the auction makes the amount of interest payments on the debt more expensive for the US. Higher 10-year rates are not what some in the Trump administration, namely Scott Bessent, want to see if they are concerned with bringing mortgage rates down and making housing more affordable.
What We're Reading
- Four Questions You Should Ask to Combat the Market Chaos - Jason Zweig
- Three Things - What. Is. Happening. - Cullen Roche
- Keeping Retirement on Track in a Rocky Economy - Eric Sheerin
Have a great weekend.
Dogwood Wealth Management