The major market indexes were down over a holiday shortened week. Inflation and the war in Ukraine continue to be the top stories on Wall Street, with no notable developments on either topic.
The week ended with the Dow Jones Industrial Average closing lower by 0.8 percent, the S&P 500 finished down 2.1 percent, and the NASDAQ closed the week down by 2.6 percent.
All three indexes remain down for the year, with the NASDAQ having declined the most. The Dow is down 5.2 percent year-to-date, the S&P 500 7.8 percent, and the NASDAQ 14.7 percent.
Inflation continues to be the hot topic on main street and Wall Street. Released on Tuesday by the government, the Consumer Price Index rose to 8.5 percent for March, an increase from 7.9 percent in February. The 8.5 percent figure for March is the highest since 1981. The core consumer price index, which excludes energy and food, was up 6.5 percent, slightly lower than the expected 6.6 percent.
The Federal Reserve maintains that its target rate for inflation remains at 2 percent for a sustainable economy. The new price index shows that the gap is widening between the target rate and actual inflation.
The Producer Price Index increased by 1.4 percent in March and increased 11.2 percent from a year ago. These are the highest increases on record for this data, which go back to 2010. The Producer Price Index measures the prices that wholesalers pay.
There is talk that inflation should peak soon, but the question is how long it will take for prices to recede. The main sign that inflation could be peaking is the prices for both commodities and energy have been stabilizing. It remains to be seen if this trend continues, especially with the peak summer driving season starting soon.
The Federal Reserve is still planning to continue to raise interest rates. The probability of the Federal Reserve raising rates by 0.5 percent in May is now at 91 percent.
Yields on U.S. Treasuries were up last week, with the U.S. 10-year Treasury closing at 2.82 percent. The 2-year closed at 2.45 percent, and the 30-year closed at 2.91 percent.
Even with the highest inflation since 1981, retail sales increased 0.5 percent in March. This figure can be misleading since retail sales are not adjusted for inflation. The highest gains in sales were at gas stations. Inflation or no inflation, Americans still have to buy gas. Gas station sales increased 8.9 percent for the month and a 37 percent increase in sales over the past year.
Other retail sales include a 3.3 percent increase for sporting goods and electronic stores, a 5.4 percent increase for general merchandise stores, and an increase of 1 percent for food and beverage stores, including bars and restaurants. One area that saw a decrease was online sales, which dropped by 6.4 percent.
After two consecutive weeks of declining prices, crude oil closed back above $100 per barrel for the week. West Texas Intermediate (WTI) closed at $106.54 after closing at around $98 the previous week.
Housing and shelter is a key component of CPI and accounts for one-third of the Consumer Price Index. House prices and the cost of rentals continue to increase as we start the spring and summer home-buying season.
The average interest rate on the 30-year fixed-rate mortgage jumped to over 5 percent last week, closing at 5.12 percent, an increase of 17 basis points from the previous week. The current rate is the highest level since early 2011 and is up from 2.65 percent in January 2022.
Even though mortgage rates are increasing at a faster pace than expected, house prices continue to rise in many cities. In Denver, the average price of a single-family home increased $109,000 in just one month to $918,850 in March. The Colorado Association of Realtors projects that the average price of a single-family home in Denver could surpass $1 million by Memorial Day.