Weekly Commentary (6/17/24) – Equity Markets Were Mostly Higher & Bonds Rally

Stocks were mixed last week, but mostly higher, and Fixed Income prices turned sharply higher in reaction to relatively benign CPI numbers despite a cautious tone from the Fed.

For the week, the DJIA ticked down 0.51% while the S&P 500 backed off its mid-week record high close, but still added 1.62% for the week.  The tech-heavy Nasdaq surged up 3.27%. The MSCI EAFE Index reversed 2.62% while emerging market equities (MSCI EM) were up 0.51%.  Small company stocks, represented by the Russell 2000, had another lagging week, and closed 0.95% lower.  Fixed income, represented by the Bloomberg/Barclays Aggregate, finished 1.31% higher for the week as yields moved sharply lower as investors embraced the May CPI data and the hopes the Fed will be less restrictive by cutting interest rates by the end of summer.  As a result, the 10 YR US Treasury closed at a yield of 4.20% (down 23bps from the previous week’s closing yield of ~4.43%) Gold prices closed at $2,331.40/oz – up 1.14%.  Oil prices moved higher by 2.92% to close at $78.45 per barrel.  

As expected, the FOMC’s interest rate decision and the May’s CPI data release (both on Wednesday) were the key events for the week.  Following their recent pattern, investors focused more on the very mild CPI numbers and basically ignored the Fed’s circumspect message and tone.  The May CPI was 0.0% - prices were unchanged.  Year-over-year (YoY) CPI was up 3.3% versus the 3.4% expectation, and Core CPI was up 0.2% in May and 3.4% YoY versus the 0.3% and 3.5% expectations.  Certainly, this is good news, but it also seems clear that the recent inflation data has been inconsistent. Being confident in finding a trend from the fact that May was a flat month for price levels is a challenge – but not for this market. The fact that the Fed is now penciling in only a single rate cut for the year and raised its 2024 inflation forecast to 2.8% from 2.6% did little to curb market enthusiasm as bonds rallied signaling that the market’s notions include significantly lower interest rates.

This week is a light period for economic data releases and markets are closed on Wednesday to celebrate Juneteenth National Independence Day.  Retail sales, business inventories and capacity utilization information are released on Tuesday.  Housing starts, building permits and existing home sales data comes on Thursday and Friday.  May’s measure of the US leading economic indicators is perhaps the most revealing statistic this week and it will be published on Friday.

Staying calm and patient is just as important as staying cool this summer.  We waited all winter for this – enjoy the summer!

"Great works are performed not by strength but by perseverance."  Samuel Johnson