Last week was an action-packed one in the U.S. financial markets. There was plenty of emotion and news moving markets, even before the Iranian strike on Israel occurred.

As a result, there are questions from a wide spectrum of investors, so here is a special update on last week, as this week is sure to bring its own market-moving headlines.

U.S. Stock Indexes

After making record highs at the end of March, the S&P 500 and the Dow continued their April retreat for the second consecutive week. Major U.S. equity indexes traded lower for the week, with volatility returning to markets as investors interpreted hotter-than-expected consumer pricing inflation data. Adding fuel to the fire was uncertainty surrounding Israel & Iran.

For the week ending 04/12/24, the S&P 500 declined by 1.56%, the Nasdaq 100 decreased by 0.58%, and the Dow Jones Industrial Average fell by 2.37%.

Iran Attacks Israel

Iran attacked Israel on Saturday, firing drones and missiles directly from Iranian territory — an unprecedented event. The majority of the incoming missiles and drones were shot down by Israel’s sophisticated defense system, with the U.S. and other nations assisting.

Markets will be digesting the weekend’s events on top of the higher inflation data released last week during trading this week.

March Inflation Data

Hot CPI on Wednesday: March Consumer Price Index (CPI) data came in hotter than expected last week, showing a 0.4% month-over-month increase and a 3.5% increase versus one year ago. Economists surveyed by Dow Jones had expected a 0.3% increase and a year-over-year level of 3.4%.

The prior month’s CPI reading was 3.2% year-over-year, so a jump to 3.5% was significant. This development sent the broader markets lower last Wednesday, with the S&P 500 losing about 1% and the Dow shedding 422 points last Wednesday.

The verdict? CPI = hot. This most recent release marks three consecutive months of monthly 0.4% increases in CPI.

Some highlights from the report showed skyrocketing car insurance costs, with car insurance rising by 2.7% month-over-month and 22.2% year-over-year. Shelter was also up 5.7% from one year ago. Transportation prices also saw rises. Let’s state the obvious: everything costs “a lot.”

Check out this handy chart for the latest inflation data on various goods and services.

Mixed PPI on Thursday: Markets caught a reprieve the day after CPI, with Thursday’s headline March Producer Price Index (PPI) data coming in below expectations on a monthly basis. Wholesale pricing increased by 0.2% month-over-month versus 0.3% expected. This came after February data showed a white-hot 0.6% monthly increase in PPI.

Annualized, however, March PPI rose by 2.1%, the highest level since April 2023.

Market action on Thursday was a bit bewildering, as the S&P 500 clawed back around 80% of Wednesday’s CPI data losses, closing up 0.8% on the day.

The PPI data was okay, but the bounce seemed to be a bit overzealous. The Nasdaq Composite made a fresh record high as buyers came into a handful of tech stocks, with Amazon touching fresh all-time highs on Thursday.

There are plenty of ways to slice and dice inflation data: exclude shelter, exclude autos, exclude this and that. The bottom line that many analysts will view is three months of firming inflation data overall.

Moderate Volatility Last Week

Volatility was not massive last week — at least not yet — as the declines were orderly on the rather muted side historically.

The S&P 500 moving around 1% lower off of hot CPI and then around 1.46% on Friday in anticipation of Middle East unknowns is actually rather tame (i.e., not 3%+ down moves as can happen during sharp corrections). Some folks have been calling these pullbacks “nano pullbacks” or “micro selloffs.”

The VIX, or “Fear Index,” moved higher last week but closed off its Friday highs, tacking on 7.99% for the week to close at 17.31. It had been as high as 19.20 earlier in Friday’s session and was still well off the highs we saw during March 2020 (near 85.00).

Fedspeak

Fed officials offered varying comments on policy last week, indicating a divided Fed.

Fed commentary was so frequent last week, that it was challenging to keep up with each day. The overall message, however, is that rate cuts will likely be pushed out, and that is logical given persistent inflation.

Eleven Fed member speeches are scheduled for this week from Monday to Thursday alone! One of the speeches will feature Federal Reserve Chair Jerome Powell and Bank of Canada Governor Tiff Macklem, who will speak at The Wilson Center, for a fireside chat on U.S.-Canada monetary policy.

Spending Bill Incoming?

Additional aid packages for Ukraine had been already in talks again, and now a spending package for Israel is almost certainly in the cards.

It is unclear whether the package will be a standalone package for Israel or jointly include more Ukraine funding.

Dictate What Happens

Volatility comes and goes in markets, and early (small) signs of it have shown up over the last seven trading sessions. Let’s remember that the S&P 500 was 24.23% higher in 2023 and is currently 7.41% higher so far this year! Corrections or pullbacks are bound to happen.

Nobody knows what this week will bring yet, but volatility could persist from last week’s levels, given the Iran/Israel developments and persistent CPI data here in the U.S.

As a long-term investor, it is wise to be thinking ahead and dictate what happens, instead of reacting to it. So, what can you do as a long-term investor? Plan and execute.

Planning and execution will vary depending on one’s investment objectives and time horizons, among other factors. In many cases, no action other than sticking to the existing plan may be the right move.

Thank you for reading!

The Trademark Capital® Team

This material is intended for informational purposes only and should not be construed as legal, accounting, tax, investment, or other professional advice. Trademark Capital’s investment strategies are built using quantitative, proprietary algorithms that are designed to identify and react to changing market conditions. However, investors should be aware that no investment strategy or risk management technique can guarantee returns or eliminate risk in any given market environment. As with all investments, Trademark Capital Management’s investment strategies are subject to risk and may lose money. The investment strategies presented are not appropriate for every investor and individual clients should review with their financial advisors the terms and conditions and risk involved with specific products or services. Due to our active risk management, our managed portfolios may underperform during bull markets. Past performance is no guarantee of future results.