Sticky inflation slows market advance

February inflation data showed no progress on inflation. That follows the same kind of readings from the previous month. While two months does not make a trend, the disappointing numbers gave investors pause.

Both the Consumer Price Index (CPI) and its cousin, The Producer Price Index (PPI), came in warmer than economists had expected. Consumer prices rose 3.2% in February from a year earlier but were only slightly higher than economist expectations of 3.1%. The PPI rose 1.6% year-over-year, which was the largest gain since last September. Month-over-month, the

PPI at +0.6% was double the average forecast.

These data points should be taken with a grain of salt since a couple of higher numbers should be expected. Few, if any, macroeconomic trends travel in an uninterrupted straight line higher or lower. Unfortunately, these results practically guarantee that the Federal Reserve will hold off on any plans to cut interest rates.

No one was expecting the Fed to cut in March anyway. In Chairman Powell’s most recent statements, he indicated March was off the table. But now, the earliest the market can expect a cut will be in June, if then. Markets are now pricing in about a 59% chance of an interest rate cut in June. Given that economic growth and employment trends remain strong, some argue that the Fed need not reduce interest rates at all this year.

Any hint of no cuts ahead would not be taken kindly by the markets. That is because much of the gains in financial markets, whether in bonds, equities, precious metals, commodities, crypto, etc., have been fueled by investor expectations that the Fed is planning on reducing interest rates at least three times this year.

As such, the FOMC meeting notes will be released on the afternoon of March 20, and I suspect every word will be analyzed with a microscope. Chairman Powell’s Q&A session afterward will also be subject to the same scrutiny. I don’t expect that Powell will deliver a nasty downside surprise. After all, this is an election year, and while the Fed is supposed to be ‘non-political,’ I doubt they would want to upset the economic apple cart and influence one side or the other.

As readers are aware, I believe the stock market is in the ninth inning of this rally. Last week, the high on the S&P 500 Index was less than 44 points away from my top-of-the-range 5,220 target. I’ve noticed some changes in the market behavior while we made that new high.

The momentum that has been driving stocks since the beginning of the year is beginning to wane and, in some areas, even reverse. The action of late has been wild and there are some signs of short-term topping patterns.

The technology sector, for example, which has led the market all year, is beginning to struggle. Semiconductors have been choppy. Nvidia, the quintessential AI stock, is no longer going up 2-3% per day. It is now down about 100 points from its all-time high. Some stalwarts of the market like Apple, Google, and Tesla (to varying degrees) seem to be rolling over. Some say that where Apple goes, so goes the market.

In this risk-on environment, the declining dollar has been supporting commodities, especially gold and silver. However, the greenback, which is the world’s safest trade, has flattened out and may be starting to bounce as traders worry that lower inflation is not quite in the bag. All of this tells me to be cautious and while we could still climb higher, I would have one eye on the exit.

Bill Schmick is a founding partner of Onota Partners Inc. in the Berkshires. None of his commentary is or should be considered investment advice. Email him at

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