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We are expecting the release of some key economic data :

I would expect the market to trade sideways on 11 Apr 2023 Tuesday before lead-up to the March CPI on Wednesday.

We have seen 10 Apr (Monday) market closed flat after crawled back from steep losses.

Market Expectation of March CPI

Market would expect the March CPI to rise by 5.2% YoY (Year-On-Year), this would be a decline of last month (February) value of 6%.

US Commercial Banks deposits has risen at the end of March for the first time, this is good news as it is showing stabilized signs for the banking sector.

This is really encouraging after the two largest bank failures and caused the financial crisis that rocked the banking system. Make depositors confidence drop.

Fed released data on Friday(07 Apr) that showed deposits at all commercial banks rose to US$17.35 trillion in the week ended March 29, on a non-seasonally adjusted basis.

Even though this is a slight increase from previous revised US$17.31 trillion a week earlier. This is the first increase recorded since start of March.

This should mark an end to the drop in deposits. And this is partly due to an increase of deposits which comes from the collapses of Silicon Valley Bank and Signature Bank toward the middle of last month.

How to trade after March CPI

Can we expect the possibility of a tradeable rally when a Fed pivot happen? I believe the chance is still there.

There has been some anticipation for the Fed to stop raising interest rates. But from what has happen in Q1 2023, now banking sector has stabilized, and Fed would think of looking at rate hike to get to their objective of 2% inflation rate.

What happen if March CPI is higher than forecast?

U.S. CPI for February has rose by 6 percent YoY to 300.84 points, slightly lower than the forecast (300.86). The annual inflation rate has slowed down for 8th consecutive month.

This would mean the Fed’s rate hike campaign over the past year has cooled the inflationary pressure.

So I begin to ask myself, what happen if the March CPI came in higher than forecast (302.254)? What factor could make the CPI go higher?

If CPI go higher would mean that the inflationary pressure has again came back, this would make Fed’s to look at the tightening campaign again to raise rates.

This also will make markets and investors feel worried of rising interest rate and cost. So we will take a look of what are the components in CPI that could contribute to higher CPI?

Major Categories in Consumer Price Index (CPI)

Looking at the major categories, the main contributing component is Food, but if you noticed All items excluding food and energy, the percentage change in February did not decrease a lot as compared to All items.

Nonfarm payrolls growth in March was about in line with expectations, but showed signs that the jobs picture is in the early stages of a slowdown. The Labor Department reported on Friday that payrolls grew by 236,000 for the month, compared to the Dow Jones estimate for 238,000 and below the upwardly revised 326,000 in February.

The unemployment rate ticked lower to 3.5%, against expectations that it would hold at 3.6%, with the decrease coming as labor force participation increased to its highest level since before the pandemic.  

So there are items that are contributing to CPI other than basic needs like food. Data showed an increase in jobs in the world’s largest economy last month, people will have more purchasing power, will this make the spending on items other than foods more, hence, driving up the CPI?

Sectors that I would focus on Week 15

Here is how some of the sectors have performed on Monday (10 Apr 2023) :

Crypto Stocks

Crypto Stocks who are mainly bitcoin focused have risen because Bitcoin has tested $30K level last night, It has also crossed $30K and maintained for 3 hours (as of time of writing).

These 3 crypto stocks will mainly be monitored and watched: RIOT, MARA, and CIFR this week. I predicted $Marathon Digital Holdings Inc(MARA)$ might hit $10 and beyond if Bitcoin price maintain at $30K for long period.

Therapeutics Stocks

Most of them are small-caps, but they seem to be sturdy enough to withstand if there is any rate hike from FED.

I would monitor their trading trend same as what I did when CPI for February was announced.

Energy Stocks

Oil prices did not change much on Thursday (Apr 6) and but posted a 3rd week gain as investors start to weigh further production cuts targeted by OPEC+ and falling US oil inventories against fears about the global economic outlook.

This would make energy stocks who are producers gain, on Monday (10 Apr), PXD, PSX, MPC has gained. I would believe that this could be the trend for this week.

Summary

I would very much still concerned about the March CPI data, PPI is also important, but I believe it is inter-related.

As investors, we would like to look at trends and do our own analysis and prediction to see which sectors would likely be able to withstand any volatility brought upon by unfavorable economic data.

Rather than focus on certain stocks, I personally think that we could look at sectors which might have better potential to be tradeable rally.

Appreciate if you could share your thoughts in the comment section on what are your thoughts on these sectors? Do you think they are able to withstand any unforeseen events from economic data?

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Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.