Strong Housing Market, AI Rally and Sticky Inflation

Stock Slows after AI-driven Rally

Stocks lost steam on Tuesday after a rally driven by the artificial-intelligence hype drove the market to its highest since August 2022. During the day Nvidia (NVDA) briefly joined the trillion-dollar club, only to fall back to its lows of the day. Hard to say if the AI driven rally is over, but buying Nvidia at $400, might be a tough pill to swallow for many, including Chris Johnson as he shared yesterday.

Energy companies weighed on the indexes as oil sank below $70 a barrel and now sits near a 4-week low. The Energy Select Sector SPDR Fund (XLE) now down 7.63% on the year. Traders are likely waiting for the OPEC+ meeting, which could push oil prices higher depending on cuts and what kind of moves Russia and Saudi Arabia plan to make.

Treasury yields also fell on hopes the US Congress will pass a debt deal to head off a default, which is looking more likely as it passes the House Rules committee, a crucial hurdle before the House vote.

Housing Picks Up and Sticky Inflation

Housing prices accelerated in March, adding to fears about stickiy inflation after prices rose for the second straight month partially due to a a shortage of homes for sale, which spurred competition among new home buyers.

This may keep the Federal Reserve on a higher for longer track, which would weight across risk assets.

Both the Home Price index and data from S&P/case-Shiller showed MoM gains that rose more than expected. The data reinforces other signals, like last weeks earnings from Toll Brothers, which saw profits jump 50% on limited stock.

Friday’s personal consumption expenditures price index (PCE), the Fed’s preferred inflation gauge, also rose faster than expected pace, reinforcing the Fed’s case on higher for longer interest rates.

Two months of increasing prices does not make mean housing is in recovery, but results suggest that a decline in home prices that began in June 2022, may have come to an end.

“Scary Place”

Billionaire hedge fund manager Cliff Asness spoke on Inflation to Bloomberg yesterday saying “If inflation stays sticky or it comes down because we enter a nontrivial recession – it’s equities that I think are a scary place.” While his fund thrived on the high inflation

environment of 2022, with his fund up 43.5%, he is concerned that stocks are not priced consistently with bonds and that the Federal Reserve could make aggressive rate cuts that lead to a recession.

Fed’s Barkin also spoke today saying inflation is going to be more stubborn than people would hope.

While Inflation is definitely something to watch out for investors have continued to pill cash into money market funds, which have ballooned to over $5 trillion. If positive momentum continues post debt ceiling resolution, this money could flow back into the market leading to a strong year.

Economic Data and Earnings

The next market moving catalyst is this week’s jobs report. As a primary indicator for the Fed, this could feed the decision whether or not we see a pause in next month’s rate decision.

Comment on Earnings

While HP Inc. (HPQ) beat on earnings, it still paints a picture of a struggling consumer as PC sales continue to slump. Even discussion of a new line of AI-focused PCs couldn’t save its stock after hours. Were watching Salesforce Inc. (CRM) and Crowdstrike Holdings Inc. (CRWD) today to see if corporate spend is holding up any better.