GOOD MORNING

Equity markets retreated on Thursday after a hot reading of the Produce Price Index raised fears that higher-for-longer means what it sounds like. The PPI accelerated at the core and headline levels, suggesting that consumer-level inflation will remain hot. In this environment, it is unlikely the FOMC will cut rates before mid-summer, and the first cut may not come until late in the year.

The risk for markets is the outlook for earnings. The market has priced in a significant upswing in earnings power for the back half of 2024 that may not come. This has the market set up for a correction that could be severe, given the proper stimulus. The catalyst for the correction may be in the earnings forecasts, which are expected to fall from their current levels. With only a few weeks left until the start of Q1 reporting, it is possible that the catalyst could come soon.

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