Inflation Declines and Bank Earnings Surprise

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

Equities were higher last week as initial banking earnings surprised to the upside and inflation continued to decline.  The year-over-year inflation numbers released last week, both Consumer Price Index and Producer Price Index, declined in March to mark the 9th consecutive month of declines.  In the last 70 years, CPI has not declined in such fashion after peaking.  The obvious answer for such a decline would be the one anomaly in the last 70 years—COVID.  The massive amounts of “free” money led to a spending explosion and we have come down off that spending high post-COVID.  Retail Sales disappointed last week on a month-over-month basis, but remain elevated year-over-year. 

The other shoe to drop last week were supposed bad bank earnings as a result of the banking crisis.  That too, disappointed the Bears last week as 4 major banks reported Q1 earnings—C, JPM, PNC, & WFC—that all bested analysts expectations.  Usage of the Fed’s Discount Window and BTFP, which expanded during the banking crisis, have eased since the 2nd week in March.  The Atlanta Fed is projecting Q1 GDP growth at +2.2%, while not robust, also not a signal of an imminent recession.  Equities may flirt with previous 6-month highs, which could result in a pause in the 4-week run the markets have been on lately.  Expect some trading choppiness. 

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