May 16, 2024
Good morning,
Even though it is only Thursday morning, the important government economic data releases for the week are behind us. Investors had been prepared for another volatile week since the monthly Producer Price Index (PPI) and Consumer Price Index (CPI) top the list of key inflation data points that the Fed has under its microscope. Sparing the nitty-gritty details, both numbers came in at or slightly better than expected, suggesting the slightest cooling in inflation. Markets, especially bonds, blew a huge sigh of relief. Bond yields on the US 10yr Treasury are down almost 20 bps so far the week to 4.33% (they hit 4.70% three weeks ago, and remember: yields down/prices up in bond-land). The S&P 500 Index (SPX) took its cue from bonds and is up +1.63% so far this week, putting in a slightly higher new high, and erasing all the damage from April’s 6% correction.
Have the markets over-reacted to good but not great data points this week? I don’t think so. Economic data, since the start of the year, has reflected a stronger economy and hotter inflation than anticipated and no data point during those months was more disappointing the CPI. The market moves in stocks and bonds was as much relief of what did not happen this week (another bad CPI surprise) as anything else.
So, the most recent jobs data, consumer confidence, retail sales, and now PPI/CPI are all softly suggesting a moderating economy and improving inflation. That is an improved story for markets, although probably not a clear enough message to give the Fed cover for rate cuts soon.
April’s correction is officially in the rear-view mirror and the near-term market message continues to signal smooth sailing ahead. We’ll have more to say on the longer term forecast next week.
Have a great weekend – I’ll be out tomorrow attending our son David’s graduation.
Be well,
Mike
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