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U.S. Economy Not Yet "Bikini Ready"

Markets arched toward a down close at the bell today, but went a little volatile in the final hour of trading, closing higher everywhere but the small-cap Russell 2000: the Dow gained +142 points, +0.45%, while the Nasdaq went up +113 points, +0.98%. The S&P 500 looked like it was going to skid into the red as of the close, but stayed up +0.28%. The Russell slipped -0.45%, and was the underperformer on the day from about the noon hour.

The Nasdaq continues to build on its +17% gains year to date, though year over year it’s still -17%. The Russell 2000, thanks to a -9% mop-down over the past month, is now also -17% year over year. The S&P is -12.6% over that time frame, and the Dow is -7.50%. Do what you will with this information: the record market highs we saw at the very beginning of 2022 (late 2021 on the Nasdaq) are well priced out of the market today.

Trim the fat? We’ve done OK so far. Maybe we’re not “bikini ready,” but there may be room to maneuver and slim down further now that we’re seeing real economic consequence over time.

A clearer roadmap on inflation data and interest rates very much rests on pending economic reports. Last week showed us CPI numbers are holding up while PPI shows some signs of weakening a tad. Next week we get new Personal Consumption Expenditures (PCE) for February — Fed Chair Powell’s most name-dropped economic metric — and we’ll see whether it continues to run hot month over month. Year over year, we saw a PCE headline of +5.4%, +4.7% on core. We’d welcome another half-percent down on either, or both.

February New Home Sales split the difference between the previous month’s total and what was expected: +640K, from a downwardly revised +633K in January and a consensus +650K estimate. The South brought in the lion’s share of new seasonally adjusted, annualized units sold: +415K, followed by the West, +133K. These regions grew by +3% and +8.1%, respectively. The Midwest gained +71K in new home sales,  -1.1%, while the Northeast lost -40% to +21K.

All of this is to say the data between now and the May Federal Open Market Committee (FOMC) meeting will be of utmost importance. Thus far, we’ve seen inflation fairly uniformly descending, a couple pesky areas of the economy notwithstanding. Occasionally, monthly stutters in the downward trajectories are met with frustration — along with assurances of another Fed rate hike — but at least we’re not seeing anything falling off a table. Other than banks specializing in tech startup loans, I mean.

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