Leaping to conclusions
It’s Leap Day today, and for the markets, the focus will be on how much of a leap inflation took during the last monthly sprint. In fact, stocks haven’t moved much this week ahead of the reading on the core personal consumption expenditures price index, which will be released at 8:30 AM ET. The figure is the Federal Reserve’s preferred inflation barometer, and has the potential to reset interest rate expectations, hence its importance in determining market direction.
“Bumps in the road”: That’s the message central bankers have been trying to get across in the final fight against inflation, and to not take any one reading as a definitive symbol of where prices are going. “The disinflationary process has been, and may continue to be, bumpy and uneven,” Fed Governor Lisa Cook said last week, while Fed Vice Chair Philip Jefferson echoed the sentiment with similar comments. “We are bound to have bumps along the road to disinflation,” declared Philly Fed President Patrick Harker, saying that more data was needed to assess the right path forward for monetary policy.
On that note, today’s core PCE reading is expected to come in hot on a monthly basis. A 0.4% increase is forecast for January, which would be double the prior reading and mark the biggest rise in nine months. On the other hand, the annual rate is expected to inch down to 2.8% (from 2.9%), though that is still above the Fed’s 2% goal. While there are likely to be some knee-jerk reactions to the data, investors, as opposed to traders, will take a broader look at all the incoming economic and market data to gauge any longer-term impacts on their portfolios.
SA commentary: “Granted, we saw a stronger-than-expected read on the Consumer Price Index and Producer Price Index for January, but neither disrupted the disinflationary trend. In fact, incoming economic data alongside those figures tell us that the rate of economic growth is slowing, as retail sales revealed, which is just the opposite of inflationary,” writes Lawrence Fuller, Investing Group Leader of The Portfolio Architect. “Following the rates of change can be difficult in a soft landing environment because the rate of economic growth must slow, which is a headwind, to realize lower rates of inflation, which is a tailwind. The key variable is the Fed’s benchmark interest rate, which must begin returning to neutral in an easing process within a window of time that prevents the rate of economic growth from slowing too much.”
AI disclosures
Apple’s (AAPL) shareholders have rejected a labor union-backed proposal for an artificial intelligence transparency report that would also disclose related ethical guidelines. AI adoption raises a number of social policy issues, according to AFL-CIO Equity Index Funds’ proposal, such as mass layoffs, privacy violations, and spread of misinformation in political elections. Apple had recommended that shareholders reject the proposal, saying its policies already address these issues and the report “could encompass disclosure of strategic plans harmful to our competitive position.” To note, AFL-CIO is also pushing other companies on AI transparency, including Disney (DIS) and Netflix (NFLX). (3 comments)
To the moon!
Bitcoin (BTC-USD) is on a roll, surging toward its all-time high and racking up its biggest monthly gain since December 2020. The latest bull run, which saw bitcoin’s market cap jump to a staggering $1.23T over the past 24 hours, has been fueled by several factors, including the spot bitcoin ETF boom that opened the door for mainstream investors and the upcoming April halving event. In another sign of growing institutional investor interest, Morgan Stanley (MS) is reportedly considering offering spot bitcoin ETFs on its broker-dealer platform. While it may be far out, SA analyst Stony Chambers Asset Research has also predicted that bitcoin will reach $175,000 before 2026. (110 comments)
Same old
Congressional leaders have struck a last-minute deal to avert a partial government shutdown, reaching an agreement on six of the 12 funding bills that have been stalled for months. One set of federal agencies, including the Departments of Commerce, Energy, and Justice, will be temporarily funded through Mar. 8, and the rest, including the Departments of Defense and Homeland Security, through Mar. 22. Lawmakers plan to vote on the continuing resolution this week, giving them time to iron out the details of the ~$1.6T federal spending package. Elsewhere, Mitch McConnell said he would step down as Senate Republican leader in November after 17 years in the job, setting up another leadership contest during the presidential election season. (2 comments)
