Last week provided a brief respite from the economic whirlwind, with the completion of the fourth-quarter earnings season and only a handful of economic reports on the horizon.

However, this week ushered in three crucial economic reports – the Consumer Price Index (CPI) and Producer Price Index (PPI) data for February, along with the February U.S. retail sales report.

Market-watchers on Wall Street scrutinized these reports as they hold the potential to influence the Federal Reserve’s upcoming interest-rate decision at the March Federal Open Market Committee (FOMC) meeting.

Today in Market 360, we delve into the intricate details of each report. I will share my insights on the Fed’s likely moves on Wednesday and shed light on the possible repercussions of an interest rate cut.

Let’s jump right in.

Unpacking the Consumer Price Index

The Labor Department revealed that the CPI showed a 0.4% increase in February and a 3.2% rise over the past 12 months. The core CPI, excluding food and energy, exhibited a similar trend – up 0.4% in February and 3.8% over the last 12 months.

Scrutinizing the numbers further…

• Stagnant food prices.
• A 2.3% surge in energy prices, particularly a 3.6% hike in gas prices.
• Owners’ Equivalent Rent (ORE) or shelter costs rose by 0.4%, slightly down from January’s 0.6% increase.

Gasoline and shelter costs were the major drivers behind the February CPI upswing. While the CPI and core CPI exceeded economists’ forecasts, no major surprises were unearthed.

Decoding the Producer Price Index

On Thursday, the Labor Department disclosed a 0.6% surge in the PPI for February, surpassing economists’ predictions of a 0.3% increase. Yearly figures show a 1.6% uptick. Core PPI, excluding food, energy, and trade margins, climbed 0.4% in February – twice the expected rise of 0.2% – and saw a 2.8% increase over the past 12 months.

Diving into the specifics of the PPI report…

• Wholesale food and energy prices experienced a 1% and 4.4% increase, respectively.
• Service costs at the wholesale level rose by 0.3%.
• Wholesale goods prices spiked by 1.2%.

This report paints a grim picture, indicating that inflation remains unchecked at the wholesale level.

Insights from the U.S. February Retail Sales Report

The Commerce Department’s release of the U.S. retail sales report on Thursday disclosed a 0.4% uptick. Excluding transportation, sales saw a modest 0.3% rise, falling short of economists’ expectations.

A closer look at the numbers…

• Vehicle sales surged by 1.6%.
• Electronics and appliance sales recorded a 1.5% rise.
• Gas station sales saw a 0.9% increase, attributed to elevated pump prices.

Overall, the retail sales report hints at lackluster GDP growth. Subsequent to this report, the Atlanta Fed revised its first-quarter GDP growth forecast downwards to a 2.3% annual pace, from the earlier 2.5% estimate.

Anticipating a Market Paradigm Shift

The Fed maintains a 2% inflation target. Based on the latest data, inflation has yet to hit that mark. Hence, the likelihood of a key interest rate cut at the upcoming FOMC meeting seems slim. It is improbable that the Fed will move to lower rates until at least June. Expect interest rates to remain steady at 5.25% – 5.50% on Wednesday.

However, once the Fed eventually takes the scissors to rates, brace yourself for a seismic shift in the market…

A substantial $8.8 trillion is currently parked on the sidelines, a historic high. Since 2020, observed has been a trend where investors, spooked by market volatility, opted to shift funds to cash. The trend escalated significantly in 2023, witnessing an astonishing $1 trillion exit the stock market for the sanctuary of money markets in that year alone.

Upon a rate cut, it is foreseeable that the $8.8 trillion stash will cascade back into equities. Investors stand to gain more in stocks than in conventional savings accounts, money markets, or Treasury bonds.

However, this deluge of funds won’t inundate all equities…

A significant chunk is poised to flow into select artificial intelligence stocks, with my system identifying five stocks set to experience a substantial influx when the floodgates open.

During my Emergency Cash Bubble Briefing this Wednesday, I delved into the impending deluge, elaborating on…

• The historical impact of rate cuts on the stock market.
• The stocks primed to benefit from the imminent cash inflow.
• And a complimentary reveal of a top AI pick.

Don’t miss out – watch the replay of my Emergency Cash Bubble Briefing now.

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Sincerely,

Louis Navellier

Editor, Market 360