1. Moving the markets

Despite a promising start with strong earnings from Goldman Sachs and encouraging retail data, the major indexes took a downturn, erasing the gains from the morning rally. The conflict in the Middle East remains a concern, but there is hope it won’t escalate further. Small Caps and the Mag7 stocks experienced a significant drop, reminiscent of the downturn two weeks prior.

On Wall Street, a surge in retail sales by 0.7% in March—exceeding the expected 0.3%—signaled continued consumer strength despite the pressures of inflation. Yet, this positive economic indicator did not prevent the S&P 500 from slipping 1.2%, a stark contrast to its earlier 0.9% rise. The Nasdaq Composite fell even more, by 1.7%, with Salesforce and other tech stocks facing the brunt of the impact.

Interest rates rose, dampening the market’s initial optimism. The 10-year Treasury yield climbed past the pivotal 4.6% mark, reaching its highest point since mid-November. This increase came on the heels of the robust retail sales data.

Gold experienced a rollercoaster, initially dropping over 1% to $2,346.00 an ounce, then rebounding with a 1.1% surge, breaking past the $2,400 threshold for the first time. This volatility follows gold’s record high last week, with an around 15% increase this year as investors flocked to the metal amidst persistent inflation and geopolitical unrest.

Oil prices saw a slight decline, relinquishing earlier gains, yet managed to recover from the day’s lows in later trading, exerting additional pressure on the market. The cumulative effect of Monday’s downturn added to the previous week’s significant losses, driven by ongoing inflation worries and a disappointing start to the corporate earnings season. Both the Dow and S&P 500 recorded their worst weekly performances since the previous year.

As bond yields soared and the dollar reached its highest level since November 13th, Bitcoin’s value declined, oil prices bounced back from initial losses, and gold fluctuated before closing at a new all-time high.

Ultimately, the S&P 500 adjusted downward, aligning with the reality of higher bond yields.

As we close out this Tax Day, could this be the turning point that marks the end of the current market correction?

1. Moving the markets

Today’s market revealed a downturn in the major indexes following the release of March’s inflation data, which exceeded expectations and may delay anticipated interest rate cuts by the Federal Reserve.

Energy was the only sector not to decline, with real estate experiencing over a 4% drop, the most significant loss of the day. After a strong start to the year, the S&P 500’s performance was flat in April, awaiting this inflation report.

The Consumer Price Index (CPI) for March showed a 0.4% monthly increase and a 3.5% rise from the previous year, surpassing the predicted 0.3% and 3.4% increases. The core CPI, excluding food and energy, grew by 0.4% monthly and 3.8% annually, also above the 0.3% and 3.7% forecasts. In April, the CPI’s annual increase rate was 3.2% for all items.

Bond yields rose sharply, with the 10-year Treasury yield climbing above 4.55%, indicating a reacceleration of the March CPI from the previous month and challenging the Federal Reserve’s goal for a 2% inflation rate. The 2-year Treasury yield reached nearly 5%.

The current CPI report confirms a shift from disinflation to persistent inflation, a perspective I’ve long maintained. The probability of the Federal Reserve easing rates this year has diminished, with only a 20% chance of a rate cut in June. The most evident sign of ongoing inflation for many is at the gas pump.

Inflation expectations have hit a new peak, the highest since June 2022. Small Caps suffered the most, falling below their 50-day moving average for the first time since November, while the MAG7 stocks remained stable despite initial losses.

Nvidia and Bitcoin emerged as alternative safety trades for this session. The dollar’s value increased, gold retreated from its continuous upward trend, and oil prices rose due to heightened geopolitical tensions, adding to the strain of higher gas prices.

As the market grapples with these challenges, one wonders how long it can endure the pressure of rising bond yields.

When will the market reach its tipping point?