Commentary

Stock investors are anxious to see the latest inflation read from the March CPI (Consumer Price Index) report today, as well as the “minutes” from the Federal Reserve’s March policy meeting.

Many Wall Street insiders believe the March CPI read will be pivotal for determining where inflation and, in turn, US interest rates are headed. Forecasters expect headline March CPI to accelerate to +3.5% year-over-year from +3.2% in February, largely thanks to the rise in gasoline prices.

The “core” (strips out food and energy) rate is expected to cool a bit to +3.7% versus +3.8% in February. If the numbers come in as forecast, investors are likely to view the report as mostly neutral.

Remember, the Fed prefers “core” inflation rates, so a slowdown there is welcome. However, progress this year has been slower than anticipated, which has contributed to Wall Street’s anxiety over Fed rate cuts. Investors may also be leery of getting too excited about a decline in “core” prices while headline prices are rising at such a fast clip due to the fact that rising energy prices have the potential to bleed into consumer goods prices over time. The “energy” component shot up +2.3% in February while “motor fuel” was up +3.8%.  

Bottom line, the Fed is looking for “further evidence” that inflation is heading toward its +2% goal but skyrocketing energy costs don’t exactly support that scenario.

Inflation worries could also be compounded tomorrow by March PPI (producer price index) which has been on a hot streak so far this year. The gains here are all related to the steady climb in raw materials costs which could also eventually push consumer prices back up if the upward pressure is sustained. The S&P GSCI, an index of global commodities prices, has climbed +11% this year. Crude oil alone is up by about +16%. In light of ongoing inflation pressures, one of the growing debates on Wall Street right now is whether stock bulls will really be derailed by the prospect of fewer rate cuts than are currently being forecast.

Some traders are keeping a close eye on the 10-year Treasury yield, thinking that if stocks can continue to rally and if yields push past 4.5%, it’s a sign that investors are much more fixated on the economy and earnings and less concerned about interest rates. For reference, yield on the 10-year note settled just over 4.3% yesterday.

Investors today will also be digesting the “minutes” from the Fed’s March policy meeting and the preliminary read on Wholesale Inventories. On the earnings front, Delta is today’s only highlight.

Bottom line, the recent data showing strength in the US economy has Wall street insiders thinking we will now see just two or three small rate cuts this year by the Fed of which they may do very little to pull back "real interest rates" nearby.

Remember, both wage growth and inflation still have a lot of work ahead of themselves and still need to slow considerably before the Fed waives the "all clear" flag in regards to fighting its most recent battle.     

Costco Selling as Much as $200 Million in Gold Bars Monthly, Wells Fargo Estimates:  Gold has turned into money for Costco, where yellow metal sales begun last year have turned into a cash cow for the big-box retailer. In fact, sales are so brisk that analysts at Wells Fargo expect revenue may now be running at $100 million to $200 million a month, a rapid acceleration since bullion hit the warehouse club late in the summer of 2023. Our work suggests there has been significant interest given COST’s aggressive pricing and high level of customer trust,”Edward Kelly, an equity analyst at the bank, said in a note to clients Tuesday. If Kelly’s assessment is correct, that would represent quite a move for a product that only debuted last August and generated about $100 million in sales in Costco’s fiscal first quarter that ended in late November 2023. Costco is selling 1-ounce bars made of nearly pure 24-karat gold. While the price is not disclosed online to nonmembers, it’s estimated that the product generally sells for about 2% above the spot price, which as of Tuesday morning was around $2,357 an ounce. That would put the price at Costco just more than $2,400.  Source CNBC

Money-Market Funds Rise to Record, Even as Stocks Climb:  Assets in money-market funds rose to a record $6.111 trillion last week, with investors sitting on massive amounts of cash on the sidelines of the U.S. stock market, according to BofA Global Research. Investors love cash, said Stephen Suttmeier, technical research strategist at BofA, in a note Tuesday. That mountain of money remains a potential source of funds for U.S. equities, he noted. Retail money-market fund levels also hit a record high of $2.429 trillion last week, said Suttmeier, while institutional money-fund levels are near their mid-March record high of $3.718 trillion. Investors have piled into money-market funds that are yielding around 5% as the Federal Reserve has kept interest rates elevated in an effort to bring down inflation. Meanwhile, the U.S. stock market has climbed this year as many traders anticipate that the Fed will begin cutting rates in 2024.  Source MarketWatch

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Big Four Tech Stocks Pause as Nvidia Hits "Technical Correction": Hot chip stocks declined in Tuesday’s session, and Nvidia Corp. shares entered correction territory in the process. Nvidia’s stock fell -2% in Tuesday trading to end the day at $853.54. Because it finished below $855.02, it entered a correction, which is typically defined by those on Wall Street as a decline of between -10% and -20% from a bull-market high. The stock joined Apple n correction territory. The smartphone maker hit that threshold on March 4 with a close below $178.30. Among the other tech stocks in the group known as the Magnificent Seven, Tesla Inc.’s stock is in a bear market, which is defined as being down more than 20% from its bull-market peak. The other four components — Google-parent Alphabet, Amazon, Facebook-parent Meta, and Microsoft - all are seeing their stocks near highs. Alphabet shares, for instance, closed up 1.1% to finish at a new all-time high of $156.60.  Source Marketwatch

Million Dollar Homes are Now “Typical” in Record Number of US Cities: There are currently 550 U.S. cities where the typical home value is $1 million or more, up from 491 a year ago. California easily boasts the most million-dollar cities, followed by New York and New Jersey. California is home to 210 million-dollar cities, more than the next five states combined, and +12 more than a year ago. New Jersey has added the most million-dollar cities over the past year, gaining +14. Florida, Texas and Delaware are the only states to have a net loss in million-dollar cities over the past year. Florida lost three million-dollar cities — Siesta Key, Santa Rosa Beach, and Sanibel — while adding one in the Village of Palmetto Bay, near Miami. Texas lost two million-dollar cities in the Austin area, Sunset Valley and Volente, and added Bellaire, outside of Houston. The typical home in Delaware’s Dewey Beach fell below the million-dollar cutoff. At the city level, the New York City metro area, which includes parts of New Jersey and Pennsylvania, has the most million-dollar cities with 106 — +24 more than a year ago. San Francisco is next with 69, followed by Los Angeles with 63. The boost in million-dollar cities is a result of the mortgage lock-in effect, which deterred homeowners with extremely low rates from listing their properties for sale, said Skylar Olsen, chief economist at Zillow. The dynamic is keeping supply limited in some markets and elevating sale prices for those few available properties. “In those places where we’ve lost million-dollar cities … they’re not as locked in, and they have a lot more of that new construction that helps that picture, too,” she said Source CNBC

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California EV Mandate Moves Forward: California will be allowed to continue implementing standards mandating the sale of so-called zero-emissions vehicles after a federal appeals court on Tuesday sided with the U.S. Environmental Protection Agency in a lawsuit filed by 17 states and many agriculture interest groups challenging a Clean Air Act waiver. The U.S. Court of Appeals for the District of Columbia Circuit issued a 48-page order Tuesday rejecting legal arguments made by attorneys general in 17 states, who said EPA's granting of a waiver in March 2022 to allow California to set what essentially is an electric vehicle mandate violates the Constitution. The states had argued it violated their sovereign rights to set their own standards or no standards at all. Replacing gasoline vehicles with EVs is seen as a direct threat to fuel companies including ethanol producers. The states alleged three financial injuries caused by EPA's waiver, including that it causes automobile manufacturers to increase the cost of conventional vehicles across the country; how the shift to more EVs would cause the states to generate less fuel-tax revenue; and that an increase in EVs from the waiver would affect the states' electrical grids. Source DTN

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