For the third consecutive month inflation rose less than expected, suggesting little urgency so far by companies to pass along the cost of higher tariffs to consumers. Are companies absorbing the costs hence eroding margins?
Margin or earnings erosion was not evident in first quarter profit reports. According to Bloomberg, 77% of S & P 500 members surprised in their quarterly earnings report. For the first quarter, profit growth is running at a 13.1% increase compared with just 6.6% expected before the start of the session.
That was then, what about now?
Perhaps a larger question is why has Wall Street/The Federal Reserve, etc. has consistently missed forecasts? Has the economy changed that dramatically? Is the data collection process flawed? How are assumptions formulated if the data is consistently different than expectations?
The volatility in the bond market is ongoing. Six trading days ago, four interest rate cuts were discounted by year’s end and the two-year Treasury or the instrument most sensitive to monetary policy was yielding around 3.55%.
At the time of this writing two interest rate cuts are fully discounted with the first one occurring in September and the two-year is around 4%. This volatility is unprecedented and a direct reflection of the uncertainty of the times [and the lack of liquidity in the markets]
April’s CPI caused a nominal steepening of the curve with both the 10 and 30-year Treasury increasing in yield while the two-year Treasury rallied.
Commenting about equites, the NASDAQ continued its unrelenting advance. Three weeks ago, it was Mudville. Today most are joyful in Whoville.
The Dow declined nominally, the result of the plunge in United Health Care which subtracted about 400 points from the average.
Is this optimism warranted or is it to a function of the lack of liquidity where a five-word headline could become a major market impetus, the result of technology-based trading where momentum appears to be the only variable?
Last night the foreign markets were mixed. London was up 0.06%, Paris down 0.58% and Frankfurt down 0.45%. China was up 0.86%, Japan down 0.14% and Hang Seng up 2.30%.
Futures are flat. The narrative is beginning to rise about the falling value of the dollar, down about 11% since January 20, primary the result of tariffs. Will the US begin to be called a “currency manipulator?” The 10-year is up 1/32 to yield 4.45%.
