Inside Markets — Hotter-than-expected

US equities are broadly lower after a hotter-than-expected CPI print, with March headline CPI coming in hotter at +0.40% MoM with the YoY rate rising to +3.5% from +3.2% in February and above consensus expectations for +3.4%. This puts another dent in the benign macro outlook that’s led to subdued equity volatility and a 21x forward multiple on the SPX.  Eventually, increased equity volatility will lead to multiple compression, but it’s unlikely to happen while GDP growth continues to run above trend. The hot CPI print will be a headwind for the equity rally, but a bearish inflection will likely be deferred until growth data (PMIs/ISM) disappoints.

Last week’s risk-off tone was partially due to rising expectations for a hotter-than-expected CPI print given strong March payrolls and increase in commodity prices.  These two factors and rising expectations for ECB/BOE rate cuts should keep inflation risk skewed to the upside.

The outlook for the SPX remains bullish until the index sustains closing levels below 4980.  A coincident spike volatility (VIX >22) would add conviction to a tactically bearish outlook.  However, a current lack of bearish momentum divergence signals and relatively normal market internals keeps us patient – for now.