Apr 136 min
by Ben Weiss, for the Call to Leap Team
TGIF! I don't know about you, but this week felt extra busy. Work was work, Wall Street struggled with new economic data, and somehow I found time to make a pilgrimage to witness the sun magically disappear completely behind the moon. What a week! Thankfully, I doubt we'll have a repeat of all those events next week. 😉
Following a strong down week last week, we saw the market slip further as investors showed fear around inflation and international conflict. Remember, the market doesn't really like uncertainty. In fact, there's an old Wall Street saying that "bad certainty is better than uncertainty".
I certainly have no crystal ball, but I can tell you for certain that I'm thankful to be part of the CTL community who values consistent, disciplined saving and investing throughout all market conditions. Let's all take one big breath in together. Your wealth building journey is a marathon, not a sprint. We got this!
Now, breath out together. Let's take a look at what happened this week and what's coming up...
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The market this week
For the second week in a row, we saw a noticeable pullback. Save for AAPL and GOOGL, which had previously been lagging behind the larger bullish market trend, we saw most industry sectors outside of Big Tech perform in the red. As we'll explore in the index charts below, we might be currently witnessing some healthy correction backing down from the recent push of all-time highs.
With earnings season kicking off in earnest next week, major companies' quarterly performances and forecasted outlooks could be a catalyst for significant market movement, in either direction. We'll be paying close attention!
By the numbers, the S&P 500 (-1.69%), Dow Jones (-2.40%), Nasdaq (-0.68%), Russell 2000 (-3.45%) all registered sizable losses, slipping lower as the week went on. On Friday, the S&P 500 suffered its biggest decline since January and is now down about -2.5% since its all-time high at the start of this month.
To the charts
SPY
This week's price movement seems to be confirming the most recent bearish breakout downward, shown by the red diagonal line, abandoning the long-running bullish trading channel in green dating back to late 2023.
In this chart, we can see how dramatic and relatively uninterrupted the recent bull run has been dating back to November 2023. I've drawn a few horizontal lines that could act as support for a declining share price. I've also included the 50-day (yellow) and 200-day (blue) exponential moving average (EMA) lines, which also can—but are never guaranteed to—act as support. As today's trading closely approached the yellow 50-day EMA, I'll be very interested to see if that level holds firm or if it fails to support the price. Below that, I see the next support around $503.
QQQ
The Nasdaq has showing a bit more buoyancy compared to the S&P 500. As I've drawn my diagonal channels, QQQ has broken out sideways-ish from the steeper green channel but remains in the upper portion of the longer-term orange channel. QQQ hasn't seemed to establish as strong of a fresh bearish trend like we saw on SPY above.
Looking back over this year and further back to late 2021, I've spotted a few potential horizontal support lines that may come into play if QQQ continues to decline. Similarly to SPY, QQQ is also resting on the yellow 50-day EMA line which may or may not act as effective support.
In the news
CPI and PPI and Inflation, oh my!...We received the highly anticipated CPI and PPI (price indices) data this week. On Wednesday, we learned that Consumer Price Index data (what we as consumers pay for goods and services) came in hotter than expected: a 0.4% rise in March giving a 3.5% rate for the past 12 months. While the number was only 0.1% higher than expected, it hints at a more muddied picture ahead for lowering interest rates. Gas and housing prices continue to be the biggest risers, a continued theme from recent months.
Like the other side of the pillow, Producer Price Index data (what companies sell their goods and services for) was cooler than expected, providing a well-received counterbalance to the hot CPI numbers. PPI rose only 0.2% in March, pleasantly undercutting expectations of 0.3% and nicely contrasting the much higher 0.6% increase we saw in February. Year-over-year, PPI did make its biggest increase since April 2023, however.
So what's this all mean? There are certainly lots of opinions and arm-chair predictions out there, but the consensus seems to interpret this mixed bag of data as a sign that it may take the Fed longer than mid-year 2024 to begin lowering interest rates. Many investors were previously anticipating June as a target date, but odds are now suggesting later summer from July to September is more likely.
Rest assured the Federal Reserve continues to monitor our progress towards a targeted 2% inflation very closely. We can expect to hear an update from them after their next FOMC meeting at the end of April.
Remember: Modest inflation is actually a good sign for a healthy economy. At a basic level, more jobs, higher wages, and healthy demand for companies' goods and services naturally causes inflation over time. Deflation (the opposite of inflation) can lead to a recession or, worse, a depression—not good! So keep in mind when we hear lots of talk about how "bad" inflation is, very high inflation (also called hyperinflation) is not good—like what we saw in 2020—but inflation by itself is not necessarily bad. As Fed Chairman Jerome Powell reiterated, "We are at a place where the economy is strong."
Check out other points in past decades where major events caused periods of higher inflation.
Earning our attention...Hope you enjoyed your time off from earnings because they're about to kick off again in full steam!
This week we saw JP Morgan Chase (JPM) and other big banks lead off the earnings calendar, with those stocks trading lower following concerns over lower "net interest income"—or the margin they earn from loaning your deposited cash to others minus what they pay you as the bank account owner in interest. The longer interest rates stay high, the harder it will be for banks to profit as lucratively from that net interest income because banking customers will continue to demand high interest payouts to keep their money at the bank.
Buckle up because next week we see earnings reports from more big names like Netflix (NFLX) and American Express (AXP), followed the next week by announcement from each of Magnificent 7 members except for AAPL and NVDA.
You got this, everyone! Stay disciplined, pay yourself first, and always invest in your greatest asset—yourself. As always, let us know if you have any questions. 🙌🏻
-Ben and Steve
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