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March CPI Numbers May Have Started a Foreseen Correction in Stocks: Market Commentary from Cabana’s CEO – April 11, 2024 

8 months ago

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Investors got the March CPI numbers yesterday (Wednesday) morning and unfortunately, they came in above expectations pretty much across the board. The rising inflation we saw in the January and February data appears to be a trend – and a trend in the wrong direction. Prices for rent, insurance and other swaths of the economy are still rising, even in the face of very restrictive monetary policy. The bottom line is people and businesses are not pulling back. How consumers continue to spend money on credit in this environment is beyond my comprehension. Credit card debt is at an all-time high while interest rates on that debt are at generational highs. Leave it to Americans (and probably all humans) to spend money that they don’t have until they can’t anymore. We apparently haven’t reached the point of “can’t anymore”. 

The 10-Year Treasury note has jumped all the way back to 4.5% and looks poised to go higher. If it breaks above 4.61%, I see a retest of 5% that we hit last fall. That level seemed to be the breaking point before, and I believe it would likely be so again. To me, the ability to hold yields here is the difference between just a correction in stocks and a major selloff, with the hard landing scenario front and center (i.e. recession).  

Bonds of all types are mired in a world of hurt and unfortunately won’t get any relief until something breaks. Of course, the bond market saw all this coming and that is why we have seen rates jump so much since the end of 2023 – even before getting hit with the reality of today’s data.  

We are beginning Q1 earnings season and that adds some complexity to the situation. The general rule is earnings must be better when interest rates are higher. We will see if earnings can somehow offset the inflation problem. I kind of doubt it, but we shall see. I think yesterday was the start of the correction in stocks we discussed two weeks ago. Whether it turns into something more depends on interest rates. 

At Cabana, we remain in our Transitional Bullish Scene for the time being but are preparing to reallocate to remove stock exposure in our more conservative portfolios.

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January 17, 2024

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