Market Outlook

The S&P 500® was down for a second consecutive week as global equities pulled back on higher-than-expected inflation. Large cap maintained its leadership, while the Russell 2000® had its worst weekly performance since early January. The 10-year U.S. Treasury jumped more than 20 basis points, its largest weekly jump since October.

Disappointing inflation was joined by lower-than-expected retail sales, as well as a revision lower to the prior month’s sales. Resilient consumers have helped the U.S. avoid recession so far; however, we believe persistent elevated inflation could become a material headwind for spending.

The Federal Reserve (Fed) is widely expected to leave interest rates unchanged at Wednesday’s Federal Open Market Committee (FOMC) meeting. We will be watching for changes in the Fed’s inflation outlook as well as comments on the path of its $7.5 trillion balance sheet.

Chart of the Week

Despite the upside surprise in last week’s Consumer Price Index (CPI) release, the Russell 3000® had its second strongest performance on an inflation-report day, in the last 12 months.

We believe this positive reaction is due in part to evidence that most components of CPI are still falling, in contrast to strong price gains in housing, which makes up a large portion of the index.

We continue to find quality allocations attractive in this environment as inflation recedes from lofty levels, albeit still well above the Fed’s 2% target.

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