The Federal Open Market Committee will meet this week and likely announce a 50 basis point hike in the Fed Funds rate, taking the short-term marker from .50% to 1.00%. Market forecasters will be keenly monitoring the Fed’s subsequent dot-plot, as well as Chair Powell’s comments at the post-meeting debrief, for clues into the pace of future interest rate hikes.
With the March Consumer Price Index showing a +1.2% MoM rise and the Producer Price Index edging up a greater than expected +1.4% MoM, it’s clear the Fed has a long way to go before it catches up to today’s inflation readings. CPI is running at +8.5% on a YoY basis while PPI has surged +11.2%. The Fed’s favored measure the PCE Core Deflator is even up +5.2%, while the Fed Funds rate remains sub 1%.
Despite the move higher in mortgage interest rates, the housing market remains hot. The S&P CoreLogic CS 20-City index surged +2.4% MoM in February and is now up +20.2% YoY. The fundamental mismatch between the current supply and current demand for housing suggests that prices may remain robust, even in the face of higher mortgage rates. Housing Starts rose +0.3% in March, while Existing Home Sales fell -2.7% and New Home Sales dropped -8.6%.
The first look at Q1 GDP came in lower than expected with the report showing the economy contracted -1.4% on an annualized basis (expectations were for growth of +1.0%). The consumer remained strong in March as Personal Income rose +0.5% while Personal Spending surged +1.1%, beating expectations for a +0.6% rise. The ISM Manufacturing reading for April came in below expectations at 55.4, although still suggestive of expansion.
The labor market remains challenged as the Unemployment Rate for March came in at 3.6% while the latest JOLTS report showed more than 11 million jobs available. The Employment Cost Index is up +4.5% YoY as of the end of Q1, and upward pressure remains on wages as the world continues to grapple with Covid-related disruption.
The aforementioned Federal Reserve meeting this week should offer a glimpse into its thinking on inflation and the subsequent pace of interest rate hikes needed to quell rising prices. Markets are nervously anticipating various outcomes, including a 75 basis point hike this week. Further hawkishness will be required in order to convince investors the Fed truly grasps the pernicious nature of inflation. Having hidden behind the “transitory” thesis for too long, the Fed’s credibility with regard to inflation fighting is clearly on the line.
To read further about domestic and international equity, fixed-income, alternative investments, and ESG please open the full paper below:
Nottingham Advisors offers both institutional and individual clients experience, sophistication, and professionalism when helping them achieve their goals. With over 40 years of serving Western New York and clients in more than 30 states, Nottingham tailors each solution to fit the specific needs of each client.
For more information about Nottingham’s offerings, visit www.nottinghamadvisors.com or call 716-633-3800.
Nottingham Advisors, LLC (“Nottingham”) is an SEC registered investment adviser located in Amherst, New York. Registration does not imply a certain level of skill or training. Nottingham and its representatives are in compliance with the current registration and notice filing requirements imposed upon SEC registered investment advisers by those states in which Nottingham maintains clients. Nottingham may only transact business in those states in which it is registered, notice filed, or qualifies for an exemption or exclusion from registration or notice filing requirements. For information pertaining to the registration status of Nottingham, please contact Nottingham or refer to the Investment Advisor Public Disclosure Website (www.adviserinfo.sec.gov). Any subsequent, direct communication by Nottingham with a prospective client shall be conducted by a representative that is either registered or qualifies for an exemption or exclusion from registration in the state where the prospective client resides.
This newsletter is limited to the dissemination of general information pertaining to Nottingham’s investment advisory services. As such nothing herein should be construed as the provision of personalized investment advice. The information contained herein is based upon certain assumptions, theories and principles that do not completely or accurately reflect your specific circumstances. Information presented herein is subject to change without notice and should not be considered as a solicitation to buy or sell any security. Adhering to the assumptions, theories and principles serving the basis for the information contained herein should not be interpreted to provide a guarantee of future performance or a guarantee of achieving overall financial objectives. As investment returns, inflation, taxes and other economic conditions vary, your actual results may vary significantly. Furthermore, this newsletter contains certain forward-looking statements that indicate future possibilities. Due to known and unknown risks, other uncertainties and factors, actual results may differ materially from the expectations portrayed in such forward-looking statements. Readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of their dates. As such, there is no guarantee that the views and opinions expressed in this article will come to pass. This newsletter should not be construed to limit or otherwise restrict Nottingham’s investment decisions.
This newsletter contains information derived from third party sources. Although we believe these third party sources to be reliable, we make no representations as to the accuracy or completeness of any information prepared by any unaffiliated third party incorporated herein, and take no responsibility therefore. Some portions of this newsletter include the use of charts or graphs. These are intended as visual aids only, and in no way should any client or prospective client interpret these visual aids as a method by which investment decisions should be made. We have provided performance results of certain market indices for illustrative purposes only as it is not possible to directly invest in an index. Indices are unmanaged, hypothetical vehicles that serve as market indicators and do not account for the deduction of management fees or transaction costs generally associated with investable products, which otherwise have the effect of reducing the performance of an actual investment portfolio. It should not be assumed that your account performance or the volatility of any securities held in your account will correspond directly to any benchmark index. A description of each index is available from us upon request.
Investing in the stock market involves gains and losses and may not be suitable for all investors. Past performance is no guarantee of future results.
For additional information about Nottingham, including fees and services, send for our Disclosure Brochure, Part 2A or Wrap Brochure, Part 2A Appendix 1 of our Form ADV using the contact information herein.