Weekly Market Commentary May 12th to May 16th 2025

Inflation data was cooler than expected for the month of April. Both headline and core CPI rose 0.2%, below the survey of 0.3%. Shelter costs accounted for more than half of the monthly gain, with household furnishings, medical care, and car insurance accounting for the rest. On a year-on-year basis, headline CPI was 2.3% while the core was 2.8%, the slowest pace since the spring of 2021. As for producer prices, measured by the Producer Price Index (PPI), prices unexpectedly fell by 0.5% in April. The drop was the biggest seen in five years due to a slump in margins, suggesting that manufacturers and service providers are refraining from passing on costs from tariffs in order to retain their business.

Although tariffs have yet to meaningfully impact inflation, it appears to have led to a pullback in consumer spending for the month of April. Retail Sales only rose by 0.1% as consumers cut back on spending on cars, sporting goods, and other imported goods. Seven of the 13 categories in the retail report posted decreases, including apparel and gasoline, while spending at restaurants and bars rose for a second straight month. The weakness in Retail Sales is a concern for weaker economic growth if this becomes a trend.

U.S. Housing Starts saw an increase of 1.6% in April to an annualized rate of 1.36 million homes. This small increase comes after a large decline in March and was driven by a 10.7% jump in multifamily construction. Starts of single-family homes decreased by 2.1%, and building permits for single-family homes decreased by 5.1%. The housing industry continues struggling to gain traction due to high mortgage rates, high home prices, and a 17-year peak in the supply of new homes, leading to a poor outlook for homebuilding in 2025.

The equity markets impressively added to their bounce back, driven by trade negotiations between the U.S. and China that took place over the preceding weekend. The S&P 500 rose 5.3% to 5,958, the Dow Jones Industrials rose 3.4% to 42,655, and the Nasdaq rose 7.2% to 19,211. U.S. Treasury yields rose modestly, with the 2-year Treasury at 3.99% and the 10-year Treasury at 4.44%.

This upcoming week we will get data on New Home Sales and Manufacturing and Services.