Market Commentary 4/12/2024

Rates Drift Higher Bringing Inflation Back On Investors’ Minds

A robust labor report, coupled with strong consumer and inflation concerns, has made the recent rise in interest rates top of mind in the financial markets. We’ve been observing this trend with caution, given the conflicting signals from the Federal Reserve on the necessity of rate cuts amidst inflationary pressures.

As we navigate these developments, we find ourselves in a situation where oil prices are nearing $90 per barrel, inflation remains elevated, and the economy continues to exhibit resilience. Such factors may not warrant an immediate rate cut in June. Nonetheless, sectors like commercial real estate and regional banks stand to benefit from a reduction in rates, alleviating ongoing strains. The Fed must do the almost impossible to balance all the data points as inflation lingers on.

Despite the challenges in housing affordability, the Federal Reserve must exercise prudence to avoid any missteps. We anticipate a shift in the narrative surrounding rate cuts, with increased caution likely taking precedence. This may keep interest rates at current levels as the markets digest the reduced odds of a June rate cut by the Fed.

Looking Ahead: First Quarter Earnings

Upcoming first-quarter earnings will provide valuable insights into the economic landscape, shedding light on the sustainability and trajectory of various industries.

In the mortgage market, rates have faced upward pressure.  Geopolitical tensions in Europe and the Middle East may benefit bond yields in what is known as the ‘flight to safety’ trade. With bonds oversold it won’t take much to get a small rate rally going.