Daily Brief - U.S. Markets Shrug Off CPI Heat

TLDR: Yesterday's hotter-than-expected CPI reading sent the U.S. markets on a rollercoaster, ultimately rallying stocks and strengthening bonds in a move that left many scratching their heads.

At first glance, the data signaled rising inflation, typically a cue for market pessimism, yet the details told a story compelling enough to flip the script.

Delving into the CPI's nuances reveals a decrease in key inflation drivers like shelter costs and medical services, suggesting some pressures could be easing. The market's initial jolt, followed by a rally, reflects a deeper investor belief: perhaps the Federal Reserve can now navigate towards a softer landing, easing rates sooner rather than pushing them higher.

This optimism, especially visible in tech stock surges, points to a nuanced interpretation of inflation's trajectory and its implications for Fed policy. With the core CPI's slight overshoot against a backdrop of specific cooling signals, investors are betting on a June pivot towards rate cuts.

Moreover, the core CPI's headline number of 0.4% was, in reality, a hair's breadth away from 0.3%, thanks to rounding from an actual figure of 0.358.

This statistical nuance suggests that inflation might not be as runaway as feared, offering a glimmer of hope that the Federal Reserve's hawkish stance could soften sooner than anticipated.

Market Movers: When the Nasdaq rallies:

Here are the historically best and worst performing sectors when the Nasdaq Composite is up 18% in 6 months:

Top 3 Performing Assets:

1. S&P OIL GAS EXPLOR PROD with a return of 3.37%
2. S&P Semi Select Industry Index with a return of 2.35%
3. S&P Biotech with a return of 2.29%

Bottom 3 Performing Assets:

1. S&P Gold Miners with a return of 0.09%
2. Utilities Select Sector with a return of 0.19%
3. S&P Utilities with a return of 0.24%

Asset Spotlight: Carnival Corp. Trailing P/B drops

In the last 4 occasions where Carnival Corp's trailing P/B ratio dropped, Toggle's analysis showed a median upward movement in the stock's price over the subsequent 3 months.

Some analysts believe that despite the company's leveraged balance sheet, Carnival's valuation is reasonable with room for upside. This view is supported by the belief in continued strong demand for cruises.

Earnings Update: Adobe reports tomorrow

Adobe is expected to report its quarterly earnings for Q1 2024 on March 14 after the market closes. In the previous quarter, Adobe exceeded expectations with an EPS of $4.27 against the consensus estimate of $4.13. The company's revenue was $5.05 billion, slightly above the expectations of $5.01 billion.

Analysts are projecting earnings growth for Adobe, with EPS expected to increase from $14.46 to $16.43 in the coming year.

Discover how other companies could react post earnings with the help of TOGGLE's WhatIF Earnings tool.