The AM Call: Inflation Dragon Not Tamed

• Equity markets sold off last week as higher inflation expectations and a weak outlook from the country’s largest retailer Wal-Mart weighed on sentiment, with a big fall on Friday. The proximate cause was the release of UMichigan data showing that long-term inflation expectations climbed to 3.5% from 3.3%, reaching a post-pandemic peak as consumers continue to expect higher prices going forward.
• Although 1Yr inflation expectations held steady at 4.3%, the Fed and the U.S. economy appears a long way from fully taming the inflation dragon. Chatter around tariffs remains problematic, as well as growing concern over the pace and scope of DOGE cuts in the Federal government. Broad economic data remains solid, and we would not read too much into the volatile UMich inflation expectations data but acknowledge that the zeitgeist appears to be at risk of ushering in a darker mood.

• Separately, preliminary February PMI data from S&P indicated contraction in the Services sector, driving the composite figure to drop below estimates. Taken together, the data points to a growing risk of slower growth and higher inflation, which drove market sentiment lower on the week.

• We note that 4Q24 earning season is mostly over, but the most important bellwether NVIDIA reports later this week. Last week, positive highlights in earnings were Unity Software (U), Analog Devices (ADI), Booking (BKNG), AliBaba (BABA), Mercado Libre (MELI) and Celsius Holdings (CELH), while Wal-Mart (WMT), Etsy (ETSY), Carvana (CVNA), Block Inc (XYZ), and Nu Holdings (NU) posted disappointing results.

• In corporate news, Apple (AAPL) revealed its new low-cost phone the iPhone 16e, Microsoft (MSFT) disclosed its first ever quantum computer chip, Nike (NKE) launched a new apparel line in partnership with Kim Kardashian’s label Skims, and UnitedHealth (UNH) shares continued to sink on a WSJ report that the US Justice department is investigating its Medicare billing practices. Palantir (PLTR) broke its impressive rally with a strong sell off after the Secretary of Defense announced plans to slash the defense budget by 8% for each of the next five years.

The Week Ahead

• Nvidia (NVDA), Salesforce (CRM), Snowflake (SNOW), Agilent (A), ZoomInfo (ZI), Instacart (CART), Intuit (INTU), Worday (WDAY), Dell (DELL), Autodesk (ADSK), Advanced Auto Parts (AAP), TJX Cos (TJX) and Monster Beverages (MNST) are among companies set to report this week.
• Later this week, we get an update on PCE, the Fed’s preferred inflation metric, as well as Personal Income and Spending for January. Core PCE is expected to climb by 0.3% on a MoM basis, and 2.6% YoY. Both are still above the Fed’s 2% target pace.

• We also get Personal Income and Spending for January. Personal Income is expected to climb by 0.4%, unchanged from December, while Personal Spending slows to 0.2% MoM from 0.7% in December.

Market Summary – Returns and Yields

• Bonds and equities are higher for the YTD, despite last week’s equity sell off. Gold is up strongly, while oil and the dollar have declined modestly.

For additional insights, be sure to check out last week’s blog post.

Definitions, sources, and disclaimers

This content is being published by Amerant Investments, Inc (Amerant Investments), a dually registered broker-dealer and investment adviser registered with the Securities and Exchange Commission (SEC) and member of FINRA/SIPC. Registration does not imply a certain level of skill, endorsement, or approval. Amerant Investments is an affiliate of Amerant Bank.

Definitions:

• Gross Domestic Product (GDP): A comprehensive measure of U.S. economic activity. GDP is the value of the goods and services produced in the United States. The growth rate of GDP is the most popular indicator of the nation’s overall economic health. Source: Bureau of Economic Analysis (BEA).
• GDPNow is not an official forecast of the Atlanta Fed. Rather, it is best viewed as a running estimate of real GDP growth based on available economic data for the current measured quarter. There are no subjective adjustments made to GDPNow—the estimate is based solely on the mathematical results of the model. In particular, it does not capture the impact of COVID-19 and social mobility beyond their impact on GDP source data and relevant economic reports that have already been released. It does not anticipate their impact on forthcoming economic reports beyond the standard internal dynamics of the model.
• The Current Employment Statistics (CES) program produces detailed industry estimates of nonfarm employment, hours, and earnings of workers on payrolls. CES National Estimates produces data for the nation, and CES State and Metro Area produces estimates for all 50 States, the District of Columbia, Puerto Rico, the Virgin Islands, and about 450 metropolitan areas and divisions. Each month, CES surveys approximately 142,000 businesses and government agencies, representing approximately 689,000 individual worksites. Source: Bureau of Labor Statistics (BLS).
• Initial Claims: An initial claim is a claim filed by an unemployed individual after a separation from an employer. The claimant requests a determination of basic eligibility for the UI program. When an initial claim is filed with a state, certain programmatic activities take place and these result in activity counts including the count of initial claims. The count of U.S. initial claims for unemployment insurance is a leading economic indicator because it is an indication of emerging labor market conditions in the country. However, these are weekly administrative data which are difficult to seasonally adjust, making the series subject to some volatility. Source: US Department of Labor (DOL).
• The Consumer Price Index (CPI): Is a measure of the average change over time in the prices paid by urban consumers for a market basket of consumer goods and services. Indexes are available for the U.S. and various geographic areas. Average price data for select utility, automotive fuel, and food items are also available. Source: Bureau of Labor Statistics (BLS).
• The national unemployment rate: Perhaps the most widely known labor market indicator, this statistic reflects the number of unemployed people as a percentage of the labor force. Source: Bureau of Labor Statistics (BLS).
• The number of people in the labor force. This measure is the sum of the employed and the unemployed. In other words, the labor force level is the number of people who are either working or actively seeking work.Source: Bureau of Labor Statistics (BLS).
• Advance Monthly Sales for Retail and Food Services: Estimated monthly sales for retail and food services, adjusted and unadjusted for seasonal variations. Source: United States Census Bureau.
• Federal Open Market Committee (FOMC): Responsible for implementing Open market Operations (OMOs)–the purchase and sale of securities in the open market by a central bank—which are a key tool used by the US Federal Reserve in the implementation of monetary policy. Source: Federal Reserve.
• The Federal Funds Rate: Is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. Source: Federal Reserve Bank of St. Louis.
• The “core” PCE price index: Is defined as personal consumption expenditures (PCE) prices excluding food and energy prices. The core PCE price index measures the prices paid by consumers for goods and services without the volatility caused by movements in food and energy prices to reveal underlying inflation trends. Source: Bureau of Economic Analysis (BEA).

Sources: U.S. Bureau of Economic Analysis (BEA), Bureau of Labor Statistics (BLS), U.S. Department of Labor (DOL), Federal Reserve, Federal Reserve Economic Database (FRED), Federal Reserve Bank of Atlanta, U.S. Census Bureau, Department of Housing and Human Development (HUD), U.S. Department of Agriculture, U.S. Energy Information Administration (EIA), U..S Department of the Treasury, Office of the United States Trade Representative (USTR), U.S. Department of Commerce, data.gov, investor.gov, usa.gov, congress.gov, whitehouse.gov, U.S. Securities and Exchange Commission (SEC), Morningstar, The International Monetary Funds (IMF), The World Bank (WB), European Central bank (ECB), Bank of Japan (BOJ), European Parliament, Eurostats, Organization for Economic Co-operation and Development (OECD), National Bureau of Statistics of the People’s Republic of China, Organization of the Petroleum Exporting Countries (OPEC), World health organization (WHO).

Financial Markets – Recent Prices and Yields, and Weekly, Monthly, and YTD (Table): Bloomberg, Weekly Market Data is in USD and refers to the following indices: Macro & Market Indicators: Volatility (VIX); Oil (WTI); Dollar Index (DXA); Inflation (CPI YoY); Fixed Income: All U.S. Bonds (Bloomberg Aggregate Index); Investment Grade Corporates (Bloomberg US Corporate Index); US High Yield (Bloomberg High Yield Index), Treasuries (ICE BofA Treasury Indices); Equities: U.S. Industrials (Dow Jones Industrial Average); U.S. Large Caps (S&P 500); U.S Tech Equities (Nasdaq Composite); European (MSCI Euope), Asia Pacific (MSCI AP), and Latin America Equities (MSCI LA); Sectors (S&P 500 GICS Sectors) Source: Bloomberg. Fed Funds Rate probabilities, Source: CME FedWatch Tool.  

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The information provided here is for general informational purposes only and should not be considered a customized recommendation, personalized investment advice offer, or solicitation for the purchase or sale of any security or investment strategy. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own situation before making any investment decision.

This information is obtained by AMTI from third-party providers from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed. Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.  All expressions of opinion are subject to change without notice in reaction to changes in market conditions. By using such information, you release and exonerate AMTI from any responsibility for damages, direct or indirect, that may result from such use. Consult the issuer of any investment for the most up-to-date and accurate information.

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Additional Risks:

• Past performance is no guarantee of future returns.
• There is no assurance the Fund will pay distributions in any particular amount, if at all. Any distributions the Fund makes will be at the discretion of the Fund’s Board of Trustees
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• Volatile markets: Because an investor may be unable to sell its shares, an investor will be unable to reduce its exposure in any market downturn
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