Inflation disappoints on the upside in U.S. and on the downside in China
The major equity benchmarks retreated for the week amid heightened fears of conflict in the Middle East and some signs of persistent inflation pressures that pushed long-term Treasury yields higher. Large-caps held up better than small-caps, with the Russell 2000 Index suffering its biggest daily decline in almost two months on Wednesday and falling back into negative territory for the year to date. Growth stocks also fared better than value shares, which were weighed down by interest rate-sensitive sectors, such as real estate investment trusts (REITs), regional banks, housing, and utilities. The primary factor weighing on sentiment appeared to be Wednesday morning’s release of the Labor Department’s consumer price index (CPI) data, which showed headline prices rising by 0.36% in March, right in line with February’s increase, in contrast with consensus hopes for a small decline from the month-earlier pace. A rebound in the price of medical services (from -0.1% in February to +0.6% in March) was partly to blame, as was a continuing sharp rise in transportation services costs, which rose 10.7% over the preceding 12 months—fed largely by increases in the cost of car insurance. Overall inflation rose 3.5% over the preceding 12 months, its biggest gain since September.
