May 26, 2023

Weekly Market Commentary May 22nd to May 26th 2023

The Fed Minutes from the May 3rd meeting showed less consensus for additional rate hikes moving forward. Fed officials have now become less certain on the path of interest rates but continue to stress the Committee’s reliance on economic data. Key data points that were released this week included GDP (Gross Domestic Product) and PCE (Personal Consumption Expenditures), which will help guide the Fed’s next decision.

The Core PCE Index, the Fed’s key gauge to inflation, reaccelerated in April increasing 0.4% after rising 0.3% in March. The index jumped 4.7% YoY as services prices increased faster than goods inflation. Headline PCE, which includes the more volatile items such as food and energy, increased 4.4% YoY despite a 6.3% decrease in energy prices. The underlying components of the report were mixed as consumers continued to dip into savings to fund their spending. The Savings Rate fell to 4.1% from 4.5% in March while Consumer Spending jumped 0.8% last month as spending on goods rebounded after two months of decline.

The second estimate of first quarter GDP surpassed expectations growing at 1.3% as the U.S. economy continues to be resilient. The hotter than expected report was led by the consumer but didn’t materially change the outlook for the economy as consumers continue to spend while inflation remains sticky. Personal consumption increased 3.8% while inflation during the quarter surpassed estimates, increasing 5.0%.

Despite a sluggish housing market, New Home Sales are roughly back to their pre-covid levels and are up nearly 12% YoY as home purchasers turn to new developments due to lack of inventory. Transactions from Existing Home Sales continue to fall, down 22.5% YoY as existing homeowners resist selling to maintain their historically low mortgage rates.

The S&P 500 and Nasdaq indices finished higher as a tech-heavy rally lifted the indexes. The S&P 500 finished at 4,205, up 0.3% while the Nasdaq rallied 2.51% to 12,976. The value-orientated Dow Jones Industrial Average fell nearly 1% to 33,093. In Fixed Income markets, yields rallied across the curve as debt ceiling concerns worried investors. The two-year treasury note now yields 4.56%, up 0.29% this week and up 0.71% in the last eleven trading days.

Next week releases include ISM manufacturing and the Unemployment Report.

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