U.S. stocks fell a third consecutive week as investors struggled to shake off diminished views of Fed rate cut expectations and geopolitical volatility in the Middle East. Hurt by a 10% Friday slide in Nvidia amid a broader AI retreat, the Nasdaq Composite sharply underperformed broader markets and the S&P closed below 5,000 for the first time in two months. The Nasdaq and S&P 500 both capped a sixth straight daily decline, their longest string of losses since October 2022.

Stocks retreated sharply on Friday’s start of the first quarter earnings season, with the Dow Industrials and S&P 500 capping back-to-back weekly losses. A hotter-than-expected consumer inflation report on Wednesday slashed hopes that Fed policymakers would begin cutting interest rates by mid-year. Cooler producer inflation offered some reassurance on Thursday, however mixed earnings from large cap banks on Friday quickly degraded investor sentiment.

In this commentary we discuss equity investors looking past hotter-than-expected inflation reports as bond investors are repricing their assets. Volatility has been absent so far this year, but the stage for volatility is being set with different market expectations in bond and stock markets as well as earnings season approaching amid stretched valuations in large cap equities.

Despite a solid gain on Friday, all three major U.S. equity indices ended negative last week. Forward momentum waned as investors wavered between desires for a stronger economy to support corporate earnings growth and being sensitive to interest rate cut expectations. Wage growth continues to be stubbornly higher as strong March payrolls data showed average hourly earnings accelerated slightly month-over-month. Another big theme was the notable increase in Treasury yields driven by overall firmer economic data.