Podcast Summary
Higher-than-expected inflation rate in CPI report causes concern among investors: Investors were concerned by a higher-than-expected annual inflation rate of 3.2% in the CPI report, but economists believe it might be due to seasonal factors rather than a new trend. The Federal Reserve's expected actions remain unchanged, with a rate cut predicted for June.
The Consumer Price Index (CPI) report for February showed a higher-than-expected annual inflation rate of 3.2%, causing some concern among investors. However, economists believe this increase might be due to seasonal factors rather than a new trend. The core CPI, which excludes food and energy prices, also rose more than expected, but the easing of shelter and owner equivalent rent figures provided some relief. The Federal Reserve's expected actions remain unchanged, with a rate cut predicted for June. Despite the economy's strong performance, some rate cuts are expected this year as an acknowledgment of inflation's deceleration. The markets saw morning volatility but ultimately rallied, with the S&P 500 and Nasdaq up over 1%. The Super Core CPI rate, which excludes housing, also rose but saw a significant decrease from January's spike. This rate is of interest to Fed Chair Jay Powell, and its February reading of 0.47% was a sharp decline from January's 0.85% increase.
Stock Market Up, Bond Market Down: Economic Uncertainty Persists: Oracle's earnings beat expectations and new partnerships boosted the stock market, but rising interest rates and a potential US recession warned by JPMorgan CEO have the bond market headed in a different direction. The Federal Reserve was advised to pause and gather more information before considering rate cuts.
While the stock market saw some positive movements with Oracle's better-than-expected earnings and an announcement of new partnerships, the bond market is heading in a different direction with rising interest rates. JPMorgan CEO Jamie Dimon added to the economic uncertainty by warning of a potential US recession, although he still sees a soft landing as the most likely scenario. The Federal Reserve was advised to pause and gain more insight before considering a pivot into cutting interest rates. In the tech sector, Oracle saw a boost due to increased demand for AI and big cloud contracts, while Kohl's faced choppy waters due to declining comparable sales and the announcement of a partnership with Babies R Us. Raymond James upgraded Coinbase to market perform from underperform, attributing the stock's momentum to Bitcoin's impact on exchange-traded product inflows. Southwest Airlines experienced a drop after announcing plans to reduce capacity due to revised Boeing delivery expectations. Overall, the economic landscape remains uncertain, with both positive and negative signs emerging from various sectors.
Boeing's challenges impact Southwest's capacity plans and hiring: Southwest Airlines adjusts full year 2024 capacity plans due to Boeing's 737 8 delivery issues, halts pilot and flight attendant hiring, and expects a smaller workforce. The 'magnificent seven' stocks, despite driving earnings growth, could face profit disappointments and be more cyclical than assumed.
Boeing's reduced delivery expectations for the 737 8 aircraft and ongoing production challenges have led Southwest Airlines to adjust its full year 2024 capacity plans, resulting in a one point reduction on a year over year basis. Additionally, the airline has halted hiring for pilot and flight attendant positions and expects to end the year with a smaller workforce. JPMorgan reports that the "magnificent seven" stocks, which include Apple, Amazon, Alphabet, Meta, Microsoft, Nvidia, and Tesla, are currently cheaper than in recent years despite driving the majority of the broader market's earnings growth last year. However, these stocks could still face profit disappointments and may be more cyclical than assumed. In 2023, the magnificent 7 saw a significant net income growth, with NVIDIA leading the way, up 335%. Despite this, the overall net income growth for the S&P 500 was only 1%, and without the magnificent 7, it was down 4%. These developments highlight the importance of adaptability in the face of changing market conditions. For investors, it may be crucial to keep a close eye on the earnings reports of these companies and the broader market trends.