Here’s What’s Happening in Markets Today: April 08

Markets inched higher this morning to kick off the new trading week after last week's decline that was fueled by rate cut anxieties.

A better-than-expected jobs report boosted the three major indices on Friday and that strength pushed exchange-traded funds like the SPDR Dow Jones Industrial Average ETF Trust (DIA), the SPDR S&P 500 ETF Trust (SPY) and the Invesco QQQ Trust (QQQ) higher: though the labor market’s strength supports a “higher for longer” rate environment, it also indicates a strong economy which should be good news for corporate earnings which kick off this week.

Investors are also holding their breath in advance of an important inflation reading—the consumer price index (CPI)—on Wednesday.

Economists polled by Dow Jones are expecting CPI to rise 0.3% in March over the previous month, while the year over year headline number is forecasted to come in at 3.5%, a rise from February’s 3.2% yearly jump. Economists expect the yearly core CPI number (which strips out volatile food and energy prices) to have cooled to 3.7% from the previous month's 3.8% rise.

The numbers indicate that while inflation continues to ease, inflation does remain persistently, and even stubbornly, high. If inflation isn't brought fully under control, the Federal Reserve will continue to hold rates higher. This would likely impact bond ETFs which suffer in a higher rate environment.

TLT, the iShares 20+ Year Treasury Bond ETF has remained under pressure for months as rate cut worries have hit the rate sensitive bond market. TLT is down more than 5% since the start of the year and its prices — currently sitting at $91.38 — remain close to the lows for the year. 

Rate cuts could impact other sectors like real estate and consumer discretionary as lower rates translate to lower borrowing costs which could boost these industries. 

VNQ, the Vanguard Real Estate ETF, the largest real estate ETF, has performed well over the past several years while the Fed kept a low-rate environment during the coronavirus pandemic. But year to date, on higher for longer rate fears, VNQ has struggled, sinking nearly 5%. The wait for rate cuts could provide a buying opportunity to investors. 

VNQ YTD 

Source: etf.com

In addition to inflation, investors will be paying close attention to corporate earnings which kick off this week. Delta is set to report on Wednesday, impacting 210 ETFs that hold the stock. JETS, the U.S. Global Jets ETF rose over 1% to start the trading day in advance of Wednesday’s earning report.

But all eyes will be on the big banks on Friday which kick off earnings season in earnest. Wells Fargo and JPMorgan Chase report their first quarter earnings before the bell. Investment firm BlackRock will also report before bell open on Friday. 

XLF, the Financial Select Sector SPDR Fund moved just slightly higher on Monday. The fund, which can be used as a broad look at the health of the financial industry, is up close to 10% year to date as higher rates have increased profit margins in banking.

 XLF YTD

Source: etf.com