The narrative is rising about market volatility. In the matter of three weeks, Bloomberg writes the Magnificent Seven has declined about 18% and is down about 14% YTD. At the time of this writing, the NASDAQ 100 is off about 10% YTD and about 13.5% from its late December apex. The S & P 500 is posting similar declines. US markets have declined over $5 trillion. Two companies have contributed about $2 trillion to this $5 trillion. [TSLA and NVDA]
Are the declines the start of something more systemic or will they be lost in the noise of typical market volatility?
An accepted catalyst for the declines is tariffs, the degree of which appears to change on the moment’s notice.
There is almost unanimity that tariffs are inflationary. I must also write there was almost unanimity that the Fed raising the overnight rate from 0% to 5.5% would cause a recession. The economy grew however at the greatest rate of the millennium as the FOMC hiked rates.
Asking rhetorically, will there be other factors negating the inflationary aspect of tariffs such as significant changes in currency and debt values?
Wow! What a radical statement.
The world has changed tectonically. The global economies have gone from “price is the only determinate of a purchasing decision” to “availability and reliability as the only determinant of purchasing decision.
The period from 1990-2020 is the only era in humankind that countries had exported their production of vital goods and services to their former adversaries during peacetime.
The resurgence of economic nationalism began before COVID and Ukraine but went on steroids since the pandemic and the War.
The West has weaponized the flow of funds and the East has weaponized the flow of goods.
Perhaps the only certainty to write is that uncertainty is perhaps now at levels not experienced in several generations.
Commenting about inflation, February consumer prices rose at the slowest pace in four months, increasing by 0.2% for the month after a sharp 0.5% advance in January. The core PPI—excludes food and energy—also rose by 0.2%. The data was marginally lower than expected.
The BLS stated that nearly half of the advance was due to shelter [and OER]. A major reason as to why the Fed believes inflationary expectations are well anchored is because the Committee thinks OER will continue to moderate.
Backtracking, several years ago the Fed had dismissed any potential rise in shelter and OER costs. As history has demonstrated, costs have risen considerably and are still rising.
The PPI is released at 8:30. How will the data be interpreted?
Last night the foreign markets were mixed. London was up 0.15%, Paris up 0.01% and Frankfurt down 0.39%. China was down 0.39%, down 0.08%, and Hang Seng down 0.58%.
Futures are nominally lower ahead of the PPI. The 10-year is off 8/32 to yield 4.34%.
