Week in Review: May 17, 2024

May 20, 2024

Recap & Commentary

Markets ended the week higher with all three major US indices- S&P 500, Dow Jones Industrial Average, NASDAQ- setting new record highs during the week, propelled by inflation data that offered hope that the recent upward pressure on prices might be ebbing. Reflecting that sentiment, interest rates as measured by the 10-Year Treasury yield fell to a one-month low before recovering slightly to end the week down 0.08%.

The slight improvement in inflation data, coupled with weaker-than-expected retail sales, which investors interpreted as slowing consumer demand, provided hope to the markets that the Fed would continue to consider rate cuts in 2024. Actual market expectations regarding Fed rate cuts were relatively unchanged with the first cut still expected to occur in September.

Following the Fed’s April/May meeting, Fed Chair Jay Powell said the Fed doesn’t like to “react to one or two months’ data.” Thus the Fed will want to see further improvement in inflation data over the course of 2Q24, before making any determination about possible rate cuts.

Through Friday, 93% of S&P 500 companies had reported 1Q24 earnings.  Thus far, 78% have beaten their earnings estimate, while 60% have beaten their revenue estimate.  According to industry group FactSet, consolidated growth for 1Q24 is expected to be 5.7%, up from the expected 3.4% on March 31.

Economic Commentary

Inflation data headlined a busy economic calendar with investors anxious to see if the upward trend in prices witness in 1Q24 persisted in April.

Investors were no doubt pleased then to see some modest deceleration in consumer prices (CPI), as headline CPI eased slightly in April, slowing to 0.3% vs. the 0.4% monthly pace recorded in February and March. Compared to a year ago, headline CPI slowed from 3.5% to 3.4%, aided by an outright 1.3% decline in goods prices, while services prices remained stubbornly high at 5.3%. Core CPI, excluding food and energy prices, also showed signs of slowing, with a monthly gain of 0.3%, down from 0.4% in March. On an annual basis, core CPI slowed from 3.8% in March to 3.6% in April. However, an even more nuanced measure of inflation know as super core, which also excludes housing, rose 4.9% in April, marking the fourth consecutive monthly increase, and fastest pace in a year. While markets were generally relieved by the data, it would be premature to conclude that inflation has resumed a sustainable downward trajectory.

Unlike the CPI data, producer inflation (PPI) reaccelerated on both a monthly and annual basis, suggesting there could be additional upward pressure on consumer prices in the months ahead.

April retail sales were flat, down sharply from March’s 0.6% increase. Core retail sales excluding autos, gas, building materials and food services contracted 0.3%. The weaker data was welcomed by markets as a sign of weakening demand potentially portending reduced pressure on prices moving forward.

Single family housing starts fell slightly in April reflecting the recent rebound in mortgage rates, however, they were up nearly 18% from a year ago.

Of Note

The US increased tariffs on Chinese electric vehicles (EVs) from 25% to 100% in an effort to block them from the US market. US automakers are worried that lower priced Chinese EVs could further reduce demand for US-made EVs.

Market Indices   (As of 05/17/2024)

The Week Ahead

• Existing Home Sales
• New Home Sales
• Composite PMI
• Consumer Sentiment
• Durable Goods Orders
• Weekly Jobless Claims