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Weekly Update 03/14/2025: Market Volatility Continues

Insights
  • Consumer and producer price data released
  • Oracle reports outstanding quarter
  • Dick's Sporting Goods finishes 2024 on a strong note
  • AT&T reaffirms targets
  • Elevance ups guidance

Inflation

Consumer prices rose 0.2% in February CPI. Excluding food and energy components, the consumer price index (CPI) also rose 0.2% according to data released Wednesday by the Bureau of Labor Statistics. On a year-over-year basis, headline CPI increased 2.8% while the so-called core measure was higher by 3.1%. All of these figures were below the median estimate in a survey of economists conducted by Bloomberg. Airfares, new car prices and gasoline charges were the main categories to decline last month. Grocery prices were little changed with folks wondering when America will make eggs cheap again. While almost half of the advance was due to shelter prices, it, too, decelerated from January. On the other hand, food away from home, which plays a key role in the computation of the Fed’s closely watched personal consumption expenditure index, climbed at the fastest pace since June. Excluding housing and energy, service prices rose 0.2% after rising by the most in a year in the prior month.

Bloomberg economists Anna Wong and Stuart Paul put it succinctly: “Ultimately, the net impact of President Donald Trump’s policies on CPI will depend on whether weaker services spending outweighs higher goods prices — and in February, it’s clear the disinflationary effect from softening services outweighed the uptick in goods inflation.” With many tariffs not in place until recently and so-called reciprocal tariffs on the way in April, the question is whether last month’s data may have been a red herring. Markets, already on edge given the flood of policy headlines, reacted positively to the news. It reduced the growing threat of stagflation for the economy. That scenario unfolds when inflation rises above targeted levels but there is no growth in the economy resulting in the worst of both worlds from the Fed’s point-of-view. But we caution not reading too much into one month worth of data, especially since tariff enforcement and rhetoric really heated up in early March. In fact, the market was actually keener on seeing the results of the producer price index (PPI) because any tariff-induced effects would be felt at the wholesale level before reaching the final consumer.

The PPI was unchanged in February, following a revised 0.6% increase in January. The median forecast in a Bloomberg survey of economists called for a 0.3% gain. Excluding food and energy, the so-called core level fell 0.1% in February. On an annual basis, core PPI was up 3.4% and the overall index was higher by 3.2%. Similar to CPI figures, the actual numbers were below the median forecast in a survey of economists conducted by Bloomberg. Services costs overall fell 0.2% while goods prices, excluding food and energy, rose 0.4%. Food prices rose 1.7%, the most in three months, while energy costs fell 1.2%. Again, just like in consumer prices, we see the battle between services and goods with each component moving in the opposite direction.

What does it all mean? The bottom line is the Federal Open Market Committee, which meets next week, is unlikely to change its benchmark interest rate which has held steady since December of last year. The target rate of 4.25%-4.50% is expected to come down by as much as 75 basis points (0.75%) by the end of the year through a series of 25 basis point reductions. That will only happen in two scenarios. First, the Fed believes that its fight against inflation is over. Or, the unemployment rate is rising fast enough that the Fed fears a recession is coming, and the country needs monetary support to soften the economic blow. Based upon these latest figures, the fight against inflation has made considerable progress over the past few years, but the resurgence in goods prices is making investors uneasy. The payroll market has its own data points to consider as we discuss next.

JOLTS, labor and shutdowns

The Jobs Openings and Labor Turnover Survey was released by the Bureau of Labor Statistics earlier this week. It showed that openings rose in January while layoffs fell and the so-called quits rate, which measures the percentage of people voluntarily leaving their jobs, rose to 2.1%. The number of available positions climbed to 7.74 million from a revised 7.51 million reading in December. That was above the median estimate in a survey of economists conducted by Bloomberg of 7.6 million. While down from the 12 million in March of 2022, it suggests that there is resilience in the labor market. The number of vacancies per unemployed worker was unchanged at 1.1x. Back in 2022, that figure rose to a 2-to-1 ratio.

Initial claims for unemployment insurance decreased by 2,000 to 220,000 in the week ended March 8. Continuing claims fell to 1.87 million in the week ended March 1, according to Labor Department data released this morning. Last week showed that the unemployment rate rose to 4.1% in February from 4.0% in the month prior. If the president and Congress cannot come to an agreement by midnight on Friday, there may be many more individuals in the unemployment line as the government will run out of funding. Discretionary spending by the federal government will stop, but mandatory programs like Social Security, Medicare and Medicaid would continue to make payments as usual. So would any interest payments on federal debt. (Fear not, the debt ceiling debate, is still coming this summer because we can never have enough high stakes standoffs in Congress can we?) According to Bloomberg estimates, a shutdown that begins on March 15 and lasts one month could trim about 0.4 percentage points from first quarter GDP growth. Nevertheless, second quarter growth would essentially offset this decline once the government reopens. The unemployment level for March (to be released the first week of April) will not be affected because the monthly survey would have been completed by the end of this week. If the shutdown goes on long enough, however, it could boost April’s figure by as much as 0.5 percentage points which would be a significant rise even if marked with an asterisk given the circumstances. This is a fluid situation which we are staying abreast of for its effects on our portfolio. If it occurs, it would be the first shutdown since 2018 and, like all previous shutdowns, will end eventually. The main takeaway is that the timing is particularly unfavorable given all the tumultuous happenings emanating from Washington over the past few months.

Company Events

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