Inflation is proving to be a problem that’s not going away anytime soon. After this past week’s CPI and PPI numbers both came in well above expectations, the bond market continued the process of adjusting rates accordingly. Just one month ago, the futures market was pricing in 6-7 rate cuts in 2024. Today, that number is down to 3-4 and nearly in line with the Fed’s forecast from its December meeting. The 2-year and 10-year yields are both about 50 basis points higher than they were a couple of months ago and Treasuries finally seem to have unwound most of investors’ over-dovishness from earlier this year. Long-term Treasuries are down about 7% from their December peak, but now appear to be in a more neutral position looking forward.
For stocks, it was a wild week that finally saw the return of volatility, albeit relatively briefly. The VIX nearly touched 18 before retreating, a level that doesn’t necessarily signal trouble in a vacuum, but it was the index’s highest reading since early November. Small-caps were particularly volatile. They went from up 2% at one point on Monday to down 3% for the week on Tuesday afternoon to up by more than 2% again by Thursday before finishing the week up by just over 1%. While investors seem to be talking themselves out of their most bullish hopes for the market here, they’re clearly still anticipating a soft/no landing outcome for the economy. Every report that runs counter to that narrative, such as the CPI, PPI or this week’s disappointing retail sales figure, proves that volatility can and will still rear its ugly head from time to time if investors need an occasional jolt of reality.
Keep reading with a 7-day free trial
Subscribe to The Lead-Lag Report to keep reading this post and get 7 days of free access to the full post archives.