Cela's Weekly Insights - March 17, 2024
Inflation concerns and Federal Reserve decisions are currently the primary factors impacting the stock market.
Surprising PPI Spike Fuels Rate Cut Speculation
This week, significant inflation data was released. The U.S. Bureau of Labor Statistics unveiled the February Producer Price Index (PPI) figures on Thursday. It's crucial to differentiate between PPI and the Consumer Price Index (CPI); PPI reflects the average change in selling prices received by domestic producers for their output, while CPI tracks consumer purchase prices. The latest PPI figures exceeded expectations, igniting speculation that the Fed might delay interest rate cuts. The PPI rose 1.6% annually in February, surpassing the anticipated 1.1%. Core PPI, which excludes food and energy, matched January's 2% annual increase and rose 0.3% monthly, slightly above the 0.2% forecast. These data points suggest we need to closely monitor future updates, with the next set due on April 11th.
Market on Edge: PPI Rise Questions Fed's Next Moves
The unexpected rise in PPI has cast doubt on the likelihood of rate cuts this year, making the upcoming Federal Open Market Committee (FOMC) Meeting on Tuesday and Wednesday even more crucial. Market participants will be keenly analyzing every statement from Fed Chair Jerome Powell, given the persistent inflation pressures. The bond market this week hinted at a "higher for longer" interest rate scenario, with 10-year US treasury yields climbing from 4.09% to 4.31%. Consequently, the Tech-Sector and small caps experienced volatility, with the Nasdaq 100 down by 1.17% and the Russell 2000 by 3.14%. Prolonged high rates challenge small caps by raising financing costs and negatively impact high-valued tech stocks by diminishing the present value of future cash flows.
Europe Surges: GRANOLAS Lead the Charge with Unprecedented Winning Streak
Turning to Europe, the market continues to astonish investors. The Euro Stoxx 50 has enjoyed eight consecutive winning weeks, boasting a year-to-date gain of 10.27%. In Germany, the DAX40 has also risen for six weeks straight, reaching over 18,000 points for the first time, though it closed just below that threshold. The rally in Europe can largely be attributed to the continent's market leaders, humorously dubbed "GRANOLAS," a nod to the U.S.'s "Magnificent 7." This group, consisting of GSK, Roche, ASML, Nestlé, Novartis, Novo Nordisk, L'Oréal, LVMH, AstraZeneca, SAP, and Sanofi, has a combined market cap exceeding €2.5 trillion, although still below Microsoft's. Despite their lower valuation compared to the U.S. giants, these companies offer higher dividends, making them attractive to shareholders.
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That's all for today, folks. For more insights, make sure to join me every weekday morning on my Podcast "Capital Markets Quickie." Tomorrow morning, we'll discuss the most important events in the week ahead.
Cheerio!
Endrit Cela The Investment Fella - #ECB #mm #411 ??
The world is full of opportunities. Financial markets never stay the same. Formerly Founder and CEO Advanced Dynamic Asset Management
1 年It looks like we need to get used to "new normal ". Higher inflation with higher interest rates. I am not great long term modeler but on 12 to 18 months time horizon It appears like higher probability of 2 to 3 percent inflation outcome with fed funds in the range of 4 percent. Thus some cuts coming possibly only 75 basis points in total till the next low point is reached.