Latest / Markets with Megan: A Quick Financial Markets Update / Breaking Down the March CPI Report with Key Insights for Investors | Episode 119 | 04-10-2024

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Breaking Down the March CPI Report with Key Insights for Investors | Episode 119 | 04-10-2024 · Markets with Megan: A Quick Financial Markets Update

• 0:02
  Megan Horneman: Well, it's hard to blame this one on seasonality.
• 0:04
  Megan Horneman: This is Megan Horneman, the Chief Investment Officer for Verdence Capital Advisors.
• 0:08
  Megan Horneman: We're coming to you today it's Wednesday, April 10th with our regular segment of Markets with Megan, and let's talk about that CPI report.
• 0:14
  Megan Horneman: This has been really the much- anticipated report for this whole week.
• 0:18
  Megan Horneman: This is inflation for the month of March, and we have gotten some conflicting news reports over the past couple of months on where we truly are headed for inflation.
• 0:27
  Megan Horneman: We've got dovish Fed rhetoric, which was, in our opinion, a mistake, but what we're seeing is the first couple of months of the year the hotter than expected.
• 0:36
  Megan Horneman: CPI reports were blamed on certain seasonality factors.
• 0:39
  Megan Horneman: Well, three months in a row, it's really hard to say that this is just seasonality.
• 0:43
  Megan Horneman: Unfortunately, inflation is stuck.
• 0:46
  Megan Horneman: It's actually moving slightly higher, not dramatically, but it's stuck, and that is exactly what the Fed does not want.
• 0:54
  Megan Horneman: We have always said that it was very easy to get from those high elevated levels that were due to the supply chain disruptions, all of those factors that happen after the pandemic.
• 1:04
  Megan Horneman: That's the easy part to get that goods inflation down.
• 1:07
  Megan Horneman: Now we're stuck here where we need to get housing inflation down, wage pressures down and, specifically, service inflation.
• 1:15
  Megan Horneman: So let's just dig into this report.
• 1:16
  Megan Horneman: This morning the report came in where inflation grew on the headline level four-tenths over the month.
• 1:22
  Megan Horneman: It was a little bit hotter than they had expected.
• 1:24
  Megan Horneman: On a year over year basis, it was hotter than expected as well.
• 1:28
  Megan Horneman: We all know that energy prices have been elevated, but when you strip out those energy prices also, it came in hotter than expected.
• 1:36
  Megan Horneman: So where is the inflation coming from?
• 1:38
  Megan Horneman: Outside of energy.
• 1:39
  Megan Horneman: We're looking at owner's equivalent rent or the housing component.
• 1:43
  Megan Horneman: On a year, year-over-year basis, that's growing almost 6%, nowhere near where it needs to get that Fed down to their target range.
• 1:51
  Megan Horneman: The other thing that's concerning for us is that service number.
• 1:56
  Megan Horneman: When you look at service inflation, it grew five-tenths of a percent last month.
• 2:01
  Megan Horneman: It's up 5.3% on a year-over-year basis.
• 2:05
  Megan Horneman: This is what we call sticky.
• 2:07
  Megan Horneman: This is very difficult for the Fed to control.
• 2:11
  Megan Horneman: When it comes to houses, the Fed can't build houses.
• 2:13
  Megan Horneman: When it comes to energy, they can't produce energy.
• 2:16
  Megan Horneman: And when it comes to services, services go up when wages go up, because wages go up and people can.
• 2:22
  Megan Horneman: When services are higher, people can demand more from the wage perspective and it becomes this vicious circle.
• 2:28
  Megan Horneman: So what does this mean for the markets Today.
• 2:31
  Megan Horneman: Honestly, they hate it.
• 2:32
  Megan Horneman: Not surprising Markets are down substantially.
• 2:35
  Megan Horneman: This has been a lot of volatility in the markets around all the inflation information, the rate cut expectations.
• 2:42
  Megan Horneman: Let's just go back a couple months when people were anticipated six rate cuts this year as early as March.
• 2:49
  Megan Horneman: That was never our base case scenario.
• 2:51
  Megan Horneman: We were always second half of the year.
• 2:53
  Megan Horneman: Well, now there is the chances of rate cuts is being pushed out into the fall and we're now looking at one, maybe two interest rate cuts priced in for this year.
• 3:03
  Megan Horneman: Our opinion on that is we've always been cautious.
• 3:05
  Megan Horneman: We've had interest rate cuts priced in for this year.
• 3:06
  Megan Horneman: Our opinion on that is we've always been cautious.
• 3:07
  Megan Horneman: We've had interest rate cuts in the second half of the year.
• 3:10
  Megan Horneman: If inflation does not get substantially better, there's a chance the Fed could be on hold for the rest of this year.
• 3:17
  Megan Horneman: We're not going to make a full judgment yet.
• 3:19
  Megan Horneman: You're going to hear people talking about the fact that they may have to even raise rates again.
• 3:23
  Megan Horneman: We're not there quite yet either.
• 3:25
  Megan Horneman: We still stand in the view that the economy will slow down.
• 3:28
  Megan Horneman: The consumer is very stretched.
• 3:30
  Megan Horneman: They will slow down spending.
• 3:32
  Megan Horneman: We'll get a slowdown in growth.
• 3:34
  Megan Horneman: Inflation should start to get back on the right trajectory.
• 3:39
  Megan Horneman: But rate cuts right now this is just not even a topic to be thought of.
• 3:42
  Megan Horneman: It was a mistake, in our opinion, that the Federal Reserve got dovish.
• 3:46
  Megan Horneman: We have talked about how there's a chance that they can reignite inflation.
• 3:50
  Megan Horneman: We're starting to see that and we think that we will start to get some more information from the Federal Reserve that they will start to pull back some of that rhetoric that interest rate cuts are around the horizon or even possible for this year.
• 4:02
  Megan Horneman: Now we're going to be back again later this afternoon.
• 4:09
  Megan Horneman: We're going to have two markets with Megan's for you today, because later this afternoon we'll get the actual FOMC minutes from their meeting their prior meeting that they had, and that's always important to get a real full picture of what the individual committee members are thinking as far as interest rate cuts and what their concerns are.
• 4:24
  Megan Horneman: That's all I have and we'll be back later this afternoon.
• 4:27
  Megan Horneman: If you have any questions or comments, please feel free to reach out to podcasts at verdence dot com.
• 4:31
  Megan Horneman: Thank you.