Revising expectations: How recent inflation data is reshaping economic forecasts
Eugene Yashin

US economics, inflation, and the Fed

The Federal Reserve is not happy with the latest round of inflation data. Both consumer and producer (wholesale) prices exceeded expectations for March. Value Line highlights that, while price increase rates have come down significantly from their multiyear peak levels in 2022, getting to the Fed’s target of 2% is proving problematic now. The Fed’s favored inflation metric, the personal-consumption expenditures price index, showed inflation running at 2.7% in the 12 months through March, or 2.8% excluding volatile food and energy prices.

Overall, the latest data suggests that inflation may be reaccelerating, especially with commodity prices continuing to surge. The probability of an interest-rate reduction before the second half of this year plummeted on the inflation headlines. The price data brought more commentary from senior Fed officials that the lead bank should keep the federal funds rate high for longer to effectively fight inflation. Treasury yields jumped on this sentiment, with the rate on the 10-year Treasury note recently topping 4.7%, a level not seen since mid-November. Equity market volatility spiked on the possibility that a rate cut may be pushed farther out.

Professor Siegel notes:

“Fed funds futures suggest diminished rate hike expectations, hovering around a single cut this year. I believe we will get more than what’s currently priced in. The Personal Consumption Expenditure (PCE) Price Index deflator is on the horizon, and I anticipate it will not be high. We’re inching closer to the Fed’s target for inflation, and I expect a dip in inflation to a three-year low on the core PCE index this week. The narrative on the Consumer Price Index (CPI) should also improve, thanks to easing shelter costs and insurance premiums. With the Fed’s long-term neutral rate indicated at 2.6%, and current rates more than double that, there’s ample room for cuts. The real economic data showed retail sales as very strong, dispelling any notions of a slowdown which prompted upward gross domestic product (GDP) forecast revisions. Housing starts presented a rare dip in an otherwise steady data stream, including jobless claims maintaining a stable trend. Manufacturing reports hint at a resurgence, also suggesting underlying economic strength.”

Meanwhile, the US economy grew by 1.6% in the first quarter of 2024 — well below the expected 2.4%. Moreover, rising geopolitical tensions in the Middle East are troublesome. This included the first direct attack by Iran against Israel. This fighting threatens global supply chains, particularly in the energy complex. It may put upward pressure on commodities and ultimately the prices for a number of goods. Elevated commodity prices could threaten the current health of the U.S. economy, as resultant higher prices for essential items (i.e., food and energy) would probably force consumers to scale back spending on discretionary products according to Value Line.

Global economy

Consensus projections have been wrong multiple times in the last two years. While economists expected inflation and economic growth to slow down, current global readings are telling a different story. Global core CPI (ex. China and Türkiye) accelerated to a 3.6% annual rate last quarter, well exceeding JP Morgan’s forecast of a 3% annual rate at the start of the year. With the recent strong gain from China, 1st Quarter 2024 (1Q24) global GDP is on track to increase at a 3.2% annual rate or slightly below per the bank’s research.

While recent weeks have seen a shift in Fed rhetoric and a broad shift in market pricing of easing, disinflation remains embedded in forecasts presented by central banks, the latest IMF World Economic Outlook, and market expectations for inflation beyond the start of this year. JP Morgan’s bottom-up forecasts also see 1Q24 surprises as a “bump in the road.” Expectations of a moderation in global GDP growth to a below-trend pace alongside gradual disinflation have not been altered by last quarter’s surprises.

Nevertheless, JP Morgan sees encouraging signs that the global expansion is forming a broader base as we move through the first half of 2024. The bank’s Capexnow tracker points to a pickup in equipment spending last quarter with momentum building further in March-April. Aligned with still strong global employment gains, the business sector appears to remain in expansion mode. A positive signal is also coming from consumers. Following a dip at the start of the year JP Morgan’s retail sales tracker looks to be rising alongside a step up in consumer confidence. The bank’s forecast has anticipated a lift in European and Japanese consumption this year in response to rising real labor income. Moreover, the most recent retail sales report shows that the US consumer is more resilient to rising gasoline prices. With a dip in the household saving rate to 3.6% expected to lift 1Q24 consumption to a 3.3% annual rate increase, a strong case can be made that the wealth effect is coming back to life after fading in the wake of the global financial crisis.

Stronger growth is not by itself an obstacle for easing. Developed markets growth has generally been weak outside the US and JP Morgan anticipates central banks in Western Europe, Canada, and New Zealand will begin easing in the coming months amidst a modest growth acceleration. The equation is different for the Fed. A cautious Fed can still ease later this year if inflation news moves back in line with its forecast. With most central banks ready to become more accommodative for economic growth, JP Morgan sees the world economy advancing by a 2.6% real growth rate in 2024.

Stock market

The stock market had a stellar beginning of the year in the 1stQ 2024. While earlier in the year the Magnificent Seven (Tech Mega Caps) drove positive returns for markets, we are encouraged by broader participation supporting markets recently. As you can see below, the Equal vs Cap Weighted Spread (1Y) started turning towards the equally weighted index domination in March of 2024. That is a very good sign for sustainability of market advances going forward.

Equal vs. Market Cap Weighted Return Spread 1 Year:

Equal vs Cap Weighted Spread (1Y). Equal vs Cap Weighted Spread (1Y) is calculated as S&P 500 Equal Weighted index 1-year return minus S&P 500 Free-Float Weighted index 1-year return. (Source: Signet Financial Management LLC).

BlackRock in their Student of the Market April 2024 publication reinforces the observation cited above by showing historic market returns following strong momentum early in the year.

So, while we don’t have a crystal ball, the probability of positive returns this year is pretty high. Keep the Faith!

The information and opinions included in this document are for background purposes only, are not intended to be full or complete, and should not be viewed as an indication of future results. The information sources used in this letter are: WSJ.com, Jeremy Siegel, Ph.D. (Jeremysiegel.com), Goldman Sachs, J.P. Morgan, Empirical Research Partners, Value Line, BlackRock, Ned Davis Research, First Trust, Citi research, HSBC, and Nuveen.

IMPORTANT DISCLOSURE

Past performance may not be indicative of future results.

Different types of investments and investment strategies involve varying degrees of risk, and there can be no assurance that their future performance will be profitable, equal to any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.

The statements made in this newsletter are, to the best of our ability and knowledge, accurate as of the date they were originally made. But due to various factors, including changing market conditions and/or applicable laws, the content may in the future no longer be reflective of current opinions or positions.

Any forward-looking statements, information, and opinions including descriptions of anticipated market changes and expectations of future activity contained in this newsletter are based upon reasonable estimates and assumptions. However, they are inherently uncertain, and actual events or results may differ materially from those reflected in the newsletter.

Nothing in this newsletter serves as the receipt of, or as a substitute for, personalized investment advice. Please remember to contact Signet Financial Management, LLC, if there are any changes in your personal or financial situation or investment objectives for the purpose of reviewing our previous recommendations and/or services. No portion of the newsletter content should be construed as legal, tax, or accounting advice.

A copy of Signet Financial Management, LLC’s current written disclosure statements discussing our advisory services, fees, investment advisory personnel, and operations are available upon request.

You might also like
November 5, 2024
Eugene Yashin provides insights into the Fed’s rate cut strategy, exploring the ripple effects on job stability, inflation, and market performance.
Read more
October 2, 2024
The Fed starts cutting interest rates as inflation cools. Explore how easing monetary policy, consumer debt, and labor market slowdowns impact the US economy.
Read more
September 3, 2024
As inflation slows, the Fed considers rate cuts to balance economic growth. Learn how this impacts markets and your investments.
Read more
August 2, 2024
US economy grows 2.8% in Q2, surpassing expectations. Learn about inflation trends, Fed policies, and global market impacts for the second half of 2024.
Read more
July 1, 2024
Understand the Fed's 'high for longer' rate policy, easing inflation, and economic impacts. Insights on US and global trends for 2024.
Read more
June 3, 2024
Explore the latest US economic insights, inflation trends, and Fed policies in Signet's June market commentary.
Read more
The Federal Reserve building in spring
April 1, 2024
February job growth exceeds expectations, signaling economic strength amid inflation. Learn how it affects Fed rate plans and what investors should do about it.
Read more
March 4, 2024
Stay informed on key economic updates: January's inflation spike, the Fed's monetary policy, global GDP growth, and S&P 500 earnings highlights.
Read more
February 1, 2024
U.S. economy grows 3.1% in 2023, defying recession fears with a robust labor market fueling consumer spending. Explore insights on inflation, Fed policies, and the 2024 economic ou...
Read more
December 1, 2023
Prepare for 2024 with our market projections: economic forecasts, interest rate impacts, and investment strategies for balancing your portfolio in the upcoming year.
Read more
November 1, 2023
Strong start to Q3 earnings season, with major banks exceeding forecasts. However, the current financial landscape presents challenges, particularly with the bear steepening of the...
Read more
Why the Fed might delay interest rate adjustments
October 2, 2023
The U.S. inflation situation remains uncertain, with the potential for another rate hike. Read how Signet adjusts portfolio strategies to navigate this intricate landscape.
Read more
Jigsaw puzzle and graph arrow growth up as an illustration of the potential interest rate hike to tame the US inflation.
September 5, 2023
The U.S. inflation situation remains uncertain, with the potential for another rate hike. Read how Signet adjusts portfolio strategies to navigate this intricate landscape.
Read more
August 1, 2023
The US economy shows positive signs with cooling inflation, boosting equities. With a strong consumer and solid job market, fears of a recession lessen.
Read more
July 6, 2023
Explore the dynamics of the US economy, inflation, and the impending Fed's rate hike decision, alongside the potential impact of AI on the economy.
Read more
The US Federal Reserve building
June 2, 2023
Earnings season proved better than expected. Inflation slowed. The Fed may be done with rate hikes. Read how Signet is positioning portfolios for the latest market developments and...
Read more
Lower Manhattan skyline with the Financial District
May 1, 2023
Earnings season is underway, and investors are watching closely. Find out what the latest economic data mean and how stocks are holding up against inflation
Read more
April 4, 2023
Eugene Yashin gives a comprehensive analysis of the current economic landscape and shares a macro look at the banking crisis and its implications for the markets.
Read more
March 6, 2023
Despite the short-term softening of corporate profit data, we should expect the stock market and growth rates to start advancing even amidst a recession.
Read more
December 5, 2022
Stocks and bonds continued their rebound in November. Chief Investment Officer, Eugene Yashin, provides key insights on today’s markets and what may lie ahead.
Read more
November 1, 2022
Monetary policy tightening may give way to a recession, but share prices do not currently reflect that risk. Market analysts share their sector forecast and portfolio recommendatio...
Read more
October 3, 2022
Nobody in the stock market feels good right now, which is a sign that things could change soon. The current market drop is an overreaction which investors can exploit.
Read more
September 1, 2022
Inflation remains high, yet the mighty U.S. consumer has proven resilient and earnings and projections came out stronger than had been feared.
Read more
August 1, 2022
The stock market took notice of the slowing economy and took off from recent lows. The bearishness on earnings remains unanimous though.
Read more
bear market stock charts
July 6, 2022
How much further can equities adjust before the trough? What will the new cycle be like? Eugene Yashin addresses the critical issues for investors in the bear market.
Read more
A miniature consumer figurine with a shopping cart walking on the bar code with us dollar banknotes money
May 31, 2022
The US economy contracted in Q1 and retailers reading looked discouraging, but expansion prevails in 2022 and the spike in inflation is not going long-term.
Read more
May 2, 2022
Eugene Yashin reviews 3 themes impacting investors: inflation, rates, and earnings. What equity portfolio management strategies should investors employ?
Read more
April 1, 2022
The economic cycle could be at risk if the Fed tightens too much. Eugene Yashin shares what investment strategies Signet has implemented to protect clients' portfolios against infl...
Read more
February 28, 2022
Historically, geopolitical events do not matter much for equities, but rising oil prices spur the Fed to act more swiftly. Eugene Yashin shares the market projections.
Read more
February 1, 2022
As the markets go through corrections, creating buying opportunities for long-term investors, what should you pay more attention to? Eugene Yashin and Steve Tuttle share the marke...
Read more
December 30, 2021
Heading into the new year, look back on the positives and negatives for investors in 2021. Check out the highlights from Goldman Sachs, J.P. Morgan, and Siegel.
Read more
December 2, 2021
Interest rate uncertainty and Omicron implications unnerve the markets, while a strong economy and earnings support the existing sentiment.
Read more
November 1, 2021
The market has been very volatile recently. In between higher earnings expectations and concerns about a possible market correction, what investors should do?
Read more
October 4, 2021
Delta fear factor, inflation concerns, the Fed’s tapering make investors rely on mega-cap growers, but the projections from the broader market stay positive.
Read more
September 1, 2021
Employment, industrial production, and factory usage are strengthening. Yet the Delta variant's impact on growth and inflation could be larger than expected.
Read more
August 2, 2021
Despite the growth bounce there're concerns around the Delta wave impacting the market and Tech serves as a safety resort against potentially slower economy.
Read more
gains in exports
June 28, 2021
GDP is on target to grow above 6% with gains in exports, a decline in jobless filings, a rebound in consumer sentiment, and rising industrial production.
Read more
June 1, 2021
Declines in jobless filings, stability in retail sales, gains in production. How does the US economy recovery affect stock market and portfolio management?
Read more
May 3, 2021
Amid earnings season, a critical question now is whether the entirety of the economic recovery has already been discounted in the stock and bond markets.
Read more
April 1, 2021
With economic growth projections and huge liquidity we expect inflation to kick in. Read how we adjust our postures to address the changing environment.
Read more
vaccines support markets
March 1, 2021
The vaccination results suggest efficacy of conventional public health measures. Read how great news on vaccines supports markets and limits downside risk.
Read more
healthcare sector going forward
February 1, 2021
Eugene Yashin highlights the strong performance of smaller stocks, value stocks and indicates sector opportunities for investors with a long-term perspective.
Read more
January 1, 2021
Eugene Yashin on how the $900bn COVID relief package combined with the Fed commitment to long-run monetary policy should support the markets going forward.
Read more
December 1, 2020
Stocks hit record highs on growing evidence of effective vaccines emergence. Eugene Yashin reviews global and US economics, stock market and portfolio changes.
Read more
November 1, 2020
On the eve of elections, Eugene reminds investors of a key lesson from 2016: avoid making big bets that rely on one particular outcome to perform well.
Read more
October 1, 2020
Stock markets have cooled off recently and the economy provides stability. The volatility is creating pockets of opportunity for long-term investors.
Read more
September 1, 2020
COVID infections spread however on the third quarter economic front, surveys result as positive. New weekly jobless filings and ongoing claims remain high.
Read more
July 31, 2020
US economy improves with strength in retail spending, industrial output, and housing. COVID infections cause unemployment, high jobless filings remain.
Read more
June 29, 2020
In Q2 2020 US equities staged a remarkable recovery from the Q1 decline rewarding investors who were able to stay invested. More in Signet's market overview.
Read more
June 1, 2020
In Q2 of 2020, US equities staged a remarkable recovery coming from the Q1 decline by rewarding those investors who were able to stay invested.
Read more
May 1, 2020
April was the best month for stock markets since 1987. What are the implications for investors? Read our latest update on the economy and financial markets. 
Read more
April 1, 2020
While the markets are dominated by fear, we do not succumb to hysteria. We act with cool heads when we rebalance and compassionate hearts when we speak to you.
Read more
March 1, 2020
Coronavirus places a brake on economic growth, however studied predictions comprise of resilient recovery in global growth rates around midyear time frame.
Read more
February 1, 2020
Coronavirus concerns hit markets, Steve Tuttle reviews why fears may be overblown, and could lead to opportunity to enhance returns for long-term investors.
Read more
February 1, 2020
US economy holds a healthy stance with decline in jobless claims and increases in housing start. Stock market performances exceed expectations.
Read more
January 1, 2020
US economy finishes strong as 2019 ends with record high stock markets. Political uncertainties diminish worldwide leading confident global growth in 2020.
Read more
December 1, 2019
Read several reasons why the US economy is expected to accelerate in 2020 as well as corporate earnings. Global GDP growth continues at a sub-par slow pace.
Read more
November 1, 2019
Our Chief Investment Officer, Eugene Yashin, examines major themes in global markets including regime change that is encouraging for value investors.
Read more
October 1, 2019
Post summer spending causes plateau in sales. Read up on key notes from the Federal Reserve’s policy meeting and why global expansion is stuck.
Read more
September 1, 2019
Rise in trade war with further tariffs from China followed by further counter measures and additional tariffs from President Trump weakens equity markets.
Read more
August 1, 2019
Stock investors benefit from low yield environment. Eugene offers thoughts on the economy, earnings, and interest rates, and how it all affects investors.
Read more
July 1, 2019
Is stock market really complacent? Eugene Yashin reviews the economy and markets, including a range of long-term opportunities for investors.
Read more
June 1, 2019
Stocks faced a tough May. Despite ongoing worries about the pace of global growth and the US/China trade dispute, fundamentals are still supportive.
Read more
May 14, 2019
After 2019’s strong start, stock markets stepped back as trade tensions between the US and China escalated. Investors are encouraged to expect volatility.
Read more
May 1, 2019
Markets indicate major improvement from Q4 of 2018 along with stronger-than-expected activity readings raising the global GDP growth estimates.
Read more
April 1, 2019
The nation’s economic locomotive slowed down in the first quarter. Growth in employment, industrial production and business fixed investment hardly advance.
Read more
March 1, 2019
Chief Investment Officer, Eugene Yashin’s latest market review features the rebound in fundamentally sound stocks and areas of opportunity for investors.
Read more
February 1, 2019
Despite historical government shutdown, our economy is forecasted to show resilience with consumer and industrial markets upholding strength for GDP upturn.
Read more
January 1, 2019
What lies ahead for the economy, markets, and investment strategies? Eugene highlights factors that drove markets in 2018 and may impact investors’ tactics.
Read more
December 1, 2018
Markets receive a boost from Fed comments and make progress on trade talks with China. Eugene evaluates key themes and data that could influence markets.
Read more
November 1, 2018
Updates concerning investment backdrop, GDP growth, higher inflation, advancing interest rates and yields on 10-year Treasury notes hitting seven-year high.
Read more
October 1, 2018
Economic growth looks healthy and we have a positive view towards financial markets finding investment opportunities in solid businesses that are mispriced.
Read more
September 1, 2018
The economy and earnings still look great. Eugene Yashin provides reasons on how this bull market still has legs with its strong advances in Q2 of 2018.
Read more
Graph
August 1, 2018
Signet financial experts see light in US and global economy with factors such as GDP growth, healthy sales, industrial production upturn and factory use.
Read more
July 1, 2018
Halfway through the year, markets digest trade tensions, market volatility, Fed policy, politics, and strong earnings. Read Signet’s forecasts for 2018.
Read more
June 1, 2018
Volatility sets concern on geopolitical tensions, trade conflicts, inflation, and politics as domestic, global environment and corporate health look supportive.
Read more
May 1, 2018
Forecasting economic and earnings growth to remain solid. Corporate earnings results are at their best levels in years while stock prices struggle to rise.
Read more
April 1, 2018
Volatility is back and judging by our macro forecast, it may be with us for some time. Volatility is not bad, but it can provoke behavioral mistakes.
Read more
pull back picture
March 2, 2018
Markets are not reacting well to President Trump’s plans to announce tariffs on steel and aluminum imports. What is to come for the investment environment?
Read more
March 1, 2018
Volatility returns in February, as we saw a stock market correction and impressive rebound within weeks. Read what to expect if volatility levels continue.
Read more
February 6, 2018
Steve Tuttle responds to the recent market volatility and answers some timely questions: Why are markets selling-off? Is this end of the bull market?
Read more
February 1, 2018
A strong labor market coupled with accelerating wages and personal income tax reform lead us to believe consumption will remain strong in the near future.
Read more
January 1, 2018
With global growth set to continue and employment outlook showing improvements, we are optimistic about the new year. Read Signet’s projections for 2018.
Read more
December 1, 2017
2017 has been a good year for the U.S. economy, and we believe the bull market can continue in 2018. Read Signet’s expectations for financial standings.
Read more
November 2, 2017
Despite hurricanes impacting many communities, the best year showing retail spending surges, welcoming recovery. The global economy tapers down, for now.
Read more
October 4, 2017
The Impact of two powerful hurricanes along with a pause in retail sales and declining industrial production contribute to slowing down economic growth.
Read more
September 13, 2017
Signet's quantitative assessment shows stocks that blend growth and value characteristics are well positioned for the late phase of economic expansion.
Read more
September 12, 2017
Read Signet's overview of performance trends and risks among sectors as well as opportunities for investors for healthy earnings growth on a global scale.
Read more
August 15, 2017
We believe the global economy is strong in foreign markets and is helping foreign currencies against the US dollar. The US economy shows loss in momentum.
Read more
gains in exports
July 3, 2017
The US economy strengthens. Unemployment is low, inflation is tame, long-term interest rates are near their low-point, and US equities show positive results.
Read more
April 3, 2017
The first quarter of 2017 was dominated by political headlines and firming economic data. Stocks have generally rallied on better global growth.
Read more
March 1, 2017
The US economy is off to a good start in 2017. Manufacturing, non-manufacturing, employment, and consumer spending data are holding up well.
Read more
February 1, 2017
The global economy continues along a low-growth path, and there are a number of bright spots. US companies report the strongest profit growth in 2 years.
Read more