Stocks sagged and bond yields rose ahead of a key reading on inflation due out Wednesday morning. The unofficial start of earnings season later this week – money center banks such as JPMorgan Chase (JPM) and Citigroup (C) are set to report – also helped keep a lid on equities.
Markets have essentially traded sideways in the early days of April as market participants recalibrated their bets on when the Federal Reserve will begin cutting interest rates. Although the central bank remains committed to three cuts in 2024, sticky inflation, a robust labor market and strong economic growth have pushed back expectations for when the Federal Open Market Committee (FOMC), the Fed's rate-setting group, will start easing.
As perhaps the most widely followed inflation reading, tomorrow's release of the Consumer Price Index (CPI) will certainly have an impact on market participants' thinking.
"The Consumer Price Index (CPI) announcement on Wednesday will be crucial and the key is to see if the owners' equivalent rent (shelter costs) are still moderating," says Louis Navellier, chairman and founder of Navellier & Associates. "The Fed normally ignores food and energy inflation and focuses on the core rate of inflation, so the core CPI will also be crucial."
As for the next CPI report, the March inflation figures are slated for release by the BLS on April 10 at 8:30 am Eastern time. The Federal Reserve Bank of Cleveland's Nowcast predicts annual headline inflation to increase by 3.4%, up from the 3.2% rate seen in the February CPI report. On a monthly basis, March inflation is forecast to rise 0.3%.
March's core CPI, which excludes volatile food and energy prices, is expected to increase 3.7% annually and 0.3% on a monthly basis.
The inflation data will influence what the central bank decides to do at the next Fed meeting. The FOMC left interest rates unchanged when it last met, and isn't expected to start cutting until its June or July meeting at the earliest.
Last week's blowout jobs report didn't exactly scream for the need for rate cuts, but it did contain some dovish news. Average hourly earnings – a measure of inflation – rose at their slowest annual rate since June 2021. Still, the 0.3% month-over-month rise in wages was quicker than the 0.1% increase seen in February.
Rising uncertainty about the Fed's plans is showing up in the futures market, where traders are having a hard time pinning down the timing of the first rate cut. As of April 9, futures traders assigned a 56% probability to the first quarter-point rate cut coming in June, up from 51% a day ago – but down from 62% a week ago, according to CME Group's FedWatch Tool.
At Monday's close, the blue-chip Dow Jones Industrial Average was down 0.02% at 38,883. However, a late-session rally allowed the other two main equity gauges to end in the green. The benchmark S&P 500 was 0.1% higher at 5,209, while the tech-heavy Nasdaq Composite added 0.3% to 16,306.
Earnings season on deck
Delta Air Lines (DAL) kicks off airline earnings season on Wednesday. The carrier had a banger of a 2023, with the air carrier's earnings per share nearly doubling on a year-over-year (YoY) basis and revenue surging 20%.
Analysts are anticipating solid first-quarter results for Delta too. Average estimates ahead of next Wednesday morning's report are for earnings of 35 cents per share (+40% YoY) on revenue of $12.6 billion (+6.0% YoY).
BofA Securities analyst Andrew Didora is targeting slightly higher earnings of 40 cents per share for Delta's Q1. The analyst also expects strong Q2 guidance from DAL due in part to accelerating domestic capacity growth and more regional flying opportunities.
On the company's earnings call, Didora will be watching for the outlook on corporate travel this summer as well as commentary on potential revenue trends from the Paris Olympics that start in late July.
Boeing stock descends on whistleblower report
In single-stock news, Boeing (BA) lost more than 2.7% at one point in intraday trading before closing down 1.9%. The likely cause was a report in The New York Times that said the Federal Aviation Administration is investigating claims by a Boeing whistleblower about flaws in the aerospace company's 787 Dreamliner.
A Boeing engineer alleges "sections of the fuselage of the 787 Dreamliner are improperly fastened together and could break apart mid-flight after thousands of trips," the Times reported. Boeing says there is no safety issue.
Shares in Boeing generated a total return of -14% over the past 52 weeks, vs a gain of 29% for the S&P 500. That sort of underperformance – and related valuation on BA stock – helps explain why Boeing still remains one of analysts' consensus Buy-rated Dow Jones stocks.
