Inflation & Rate Expectations Move Markets

By Scott Poore, AIF, AWMA, APMA
Chief Investment Officer, Eudaimonia Group

Equities finished lower for the week for the first time since the start of the year.  However, what we may be witnessing is the beginning of a rotation among sectors of the market.  Small caps and international equities moved higher while the Tech and Communication Services - two sectors that have lead the way for months - under-performed.  We can see a breakout of the S&P 1500, which represents large, mid, and small caps, saw the majority of the index move higher as stocks advancing within the index out-paced decliners.  In addition, sectors that have lagged - Healthcare, Financials, and Utilities - shined last week.  Inflation numbers were the primary catalyst.

The month-over-month CPI & PPI numbers for January shocked the market last week, resulting in a 1.3% loss on Tuesday.  However, the year-over-year numbers are at or below the historical average.  Markets need to adjust to a potential Fed rate cut not happening until the 2nd half of 2024.  So far, consumers and corporations are managing their respective balance sheets well.  Corporations are holding plenty of cash, especially when compared to the Dot.com era.  Consumers are spending, but debt levels as a percent of disposable income are lower than just before the 2008 Financial Crisis.  Expect more volatility as we enter the latter half of February.

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Disclosures

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