Weekly Market Commentary May 28th to May 31st 2024

The holiday-shortened week was light in economic data volume, but heavy in content. Based on the past three months’ worth of less than stellar inflation data, anticipation was sizeable for the April Personal Consumption Expenditure (PCE) release. The Fed’s go to measure for inflation, the PCE Deflator, came in as expected at 0.30% month-over-month and 2.70% year-over-year. Both figures matched March’s release so enthusiasm was limited. But we’ll join others and take the ‘glass half full’ approach and say at least inflation didn’t increase. Excluding food and energy, the PCE Core Deflator looked slightly better; coming in at 0.20% month-over-month when 0.30% was expected. In a positive sign for future inflation releases, Personal Income dropped from 0.50% to 0.30%; and Personal Spending fell to 0.20% from 0.70%. We’ll be watching to see if this becomes a trend as the Fed maintains it’s ‘higher for longer’ approach in order to bring inflation down to their 2% target level. Remember, the Fed acknowledges a certain amount of economic pain is in store as they negotiate the soft landing needed to both slow inflation and maintain economic stability.

Elsewhere, the second cut of Q1-GDP was released and there was a bit of a pull-back from the first. Q1-GDP now stands at 1.3% when earlier reports had it at 1.6%. Analysts are chalking it up to slowing consumption which, again, is what the Fed is hoping for. The idea is to softly ‘land’ the economy, not crash it. Another statistic often mentioned here is Weekly Initial Jobless Claims. While nothing drastic was reported, we are seeing this figure well above 200k since February; another sign that the economy is slowing. More pressure from higher interest rates causes companies to reevaluate their staffing needs and can lead to layoffs. Lastly, in another hit to the struggling real estate sector, Pending Home Sales dropped a whopping 7.4% in April. This followed two straight positive months but it’s important to point out that these monthly real estate measures can be volatile. Overall, high rates and low inventory are making real estate one of the hardest hit sectors.

The equity markets took this mixed bag of results with caution and finished the week down across the board. The S&P 500 Index closed at 5,277 or down 0.5% on the week; the Dow Jones Industrials fell 1.0% to 38,686; and the NASDAQ closed at 16,735 or down 1.1%.

In the fixed income market, U.S. Treasury rates were mixed. At the shorter end of the curve, rates fell with the 2-Year ending the week at 4.88%. The 10-Year and 30-Year yields both closed up at 4.50% and 4.65%, respectively. The yield curve continues to flatten as we gradually get closer to a more normal, upward-sloping curve.

Next week’s economic data will be headlined by the May employment report on Friday. Look for upwards of 175,000 newly created jobs. Secondarily, ISM Manufacturing and Services will be released and both are expected to slightly contract, another reasonable sign for a Fed that’s attempting to put the brakes on the economy.