The consumer price index for April showed that inflation in the U.S. is moderating. But the topic that dominated markets last year seemed to have elicited only a muted response yesterday, suggesting that investors are preoccupied with other concerns.
Annual inflation came in at 4.9% last month; JPMorgan Chase's sales and trading team predicted that the S&P 500 would rise between 1% to 1.25% on that better-than-expected number. Yet the S&P added only 0.45% and the Dow Jones Industrial Average remained mostly flat. Only the Nasdaq Composite posted a more substantial gain at 1.04%, reflecting its tech-heavy composition which is more sensitive to interest rates.
That muted movement could be because the Federal Reserve had, at its last meeting, suggested it might pause rate hikes. In other words, the CPI reading mattered less to markets because interest rate trajectory — which is highly dependent on inflation — appears more certain now. (Though we should remember that New York Fed President John Williams warned the central bank might still increase rates if inflation proved stubborn).
Hence, investors focused more on the ongoing ruction in banks and companies' quarterly performance.
For the first, there's a silver lining to the turmoil, at least. First Citizens popped 7.45% after it announced a $257 million surge in first-quarter net income, following its purchase of Silicon Valley Bank in March.
It was mostly bad news for companies that reported earnings, however. Airbnb lost 10.9% and Twilio sank 12.6% after both companies projected a weak second quarter. Disney suffered in extended trading as traders punished its loss of Disney+.
The producer price index, coming out later today, will reveal wholesale prices — and hence might give a better forecast than the CPI of how inflation will look in the coming months. Still, barring a shocking number, it's unlikely markets will be too swayed by it. Investors will keep their eyes trained on banks and corporate earnings.
