Broker Check

Market Insights – Week Ending May 17, 2024

May 20, 2024

Market Summary –

Equities rallied to new all-time highs as lower inflation data gave market participants a sigh of relief, keeping interest rate cut hopes alive. Expectations for a less-restrictive Fed policy, coupled with resilient economic growth and all-time high corporate profits, are conducive to further gains. Equities were further supported by anticipation for the AI bellwether Nvidia’s (NVDA) earnings release on May 22, which commands a 5% market share in the S&P 500 and has largely driven this year’s market rally.

Fed Policy & Economy –

Elevated, persistent inflation has given market participants hesitancy due to the likelihood of higher-for-longer rates and delayed rate cuts. On that front, April’s CPI (consumer price index) report was exactly what the market needed to renew positive sentiment. On a year-over-year basis, CPI increased 3.4% from 3.5% the previous month with core-CPI (excluding food and energy) increasing 3.6% from 3.8% in March. This downward shift followed three consecutive months of higher-than-expected inflation. The downward move overshadowed two caveats: (1) April’s PPI (producer price index) – which shows inflation from the producers’ perspective – came in hotter-than-expected but was largely overlooked due to the previous month’s downward revision. (2) Commodity prices continue to rise as gold and copper hit record highs, which could be seen as inflationary but was again overlooked due to commodities representing only a portion of overall inflation.

Commentary from Fed Chair Powell early in the week (prior to the release of April’s inflation data) highlighted mixed sentiment as he expects falling inflation and a prolonged rate pause, rather than further hikes. While inflation remains above the Fed’s 2% target, higher-for-longer rates will likely remain in the near-term; still, the bias is tilted towards eventual rate cuts and policy easing which has helped calm market worries.

Chart of The Week – April Inflation Data

Headline inflation (blue) and core-Inflation (yellow) depicted below shows continued declines - although still elevated above the Fed's 2% target and likely not enough on its own to prompt the Fed to begin cutting rates. Still, April's inflation data is promising in terms of alleviating near-term rate hike worries and giving a boost to equities.


Week Ahead –

This week, the market will be focused on Nvidia’s (NVDA) earnings release on Wednesday. Other notable earnings reports include Palo Alto Networks (PANW) on Monday along with TJX Companies (TJX) on Wednesday. With light economic data outside of Durable Goods Orders for April on Friday, most attention will be placed on NVDA and management’s guidance in terms of any potential slowdown in AI demand following the last few quarters of robust growth. 

 

As always, if you have any questions or comments please do not hesitate to reach out.

 

Respectfully,

Michael Neill, CFA


Chart & Inflation Data Source: Bloomberg LP