Market sell-offs (^DJI, ^IXIC, ^GSPC) fueled by March inflation data are pushing stocks lower as the Dow Jones Industrial Average has fallen by over 400 points Wednesday morning. Shelter and energy costs have been major contributors to inflationary trends.
Interactive Brokers Chief Strategist Steve Sosnick and Tematica Research CIO Chris Versace react to this morning's inflation figures. Sosnick found the inflation print to be somewhat alarming, especially for Federal Reserve officials trying to make heads-or-tails about when to initiate an interest rate cutting cycle.
"When you look at the data, particularly the core CPI on a year-over-year basis for the last six months, it's trapped between this 3.8%, 4.0% range, effectively stalling out from the progress we saw in 2023, the first six to nine months," Versace tells Yahoo Finance, explaining he was not as surprised while looking to Thursday's Produce Price Index (PPI) reading.
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Editor's note: This article was written by Luke Carberry Mogan.
Video Transcript
- Well, stocks falling as hotter than expected. Inflation in March put investors on edge. This is the third hotter than expected report, and it complicates the Fed's next move on interest rates as the central bank works to bring down inflation to its 2% target.
Now the big pressure is on price of shelter. That accounted for over 60% of the total 12-month increase in core prices. And energy prices largely to blame for the rise in headline figure. Americans are paying more at the pump. Here with more, we've got Steve Sosnick who is the Interactive Brokers chief strategist, alongside Chris Versace, Tematica Research chief investment officer. Great to have both of you here with us today.
You know, first and foremost, I got to I got to wonder here, Steve, what went through your mind when you saw this report come out, when you saw the figure drop, and you see the market reaction like this?
STEVE SOSNICK: Good morning, Brad. Literally, I tweeted my first response, which was just gulp. It was a bit of a stunner because when you think about it, we really were unchanged on these metrics versus month over month. And remember, it's much more sensible to look month over month than year over year because you want to see whether one month of fresh data is rather than the 11 months of old data is.
But within a matter of seconds, my thoughts changed to how can the Fed really consider cutting interest rates in this environment? Remember, the Fed has the dual mandate. Full employment, which we saw as recently as last Friday, still seems to be in place, and stable prices, which we got another reminder today, that that part of the mandate is not in place. So you don't have the ability to cut rates. The markets adjusted to that. And I think the market was really just not in the mood for an upside surprise in inflation, and this is the result of what we're seeing. And the bond markets certainly is not in love with these numbers.
- Chris, I was taking a look at your Twitter, or X, or whatever we're calling it today, profile as well. And you were of the same thinking. I mean, fewer rate cuts than expected coming. So what is the reality of that look like here as we go into now and are in the midst of the second quarter and now staring down perhaps a back half of this year type of cutting environment if any cuts at all?
CHRIS VERSACE: So I will say this, Brad. I wasn't very surprised by the hotter than expected print. And if we follow the data, you look at the March PMI reports, input prices, selling prices moving higher. We look at some of the wage data. Even comments found in yesterday's March NFIB Small Business Optimism Index, businesses, small businesses in particular, struggling with inflation. So not overly surprised.
But I think when you look at the data, particularly the Core CPI on a year over year basis for the last six months, it's trapped between this 3.8%, 4.0% range, effectively stalling out from the progress we saw in 2023, the first six to nine months. So I really do think that the Fed is, they're in a very tough position here. And we are seeing rate expectations fall. I've been in the camp that we would probably see two, maybe one rate cut, and I think the market is coming around to that.
But remember, Brad, we also have the PPI report tomorrow. And if you look at the trend of late in a number of different commodities, they are higher. That's going to impact the PPI report, and the PPI data tends to lead the CPI by a couple of months.
