Major U.S. stock market indexes traded in a notably mixed fashion last week, with tech providing leadership as industrials lagged.

Tallying last week, the S&P 500 was nearly flat, higher by 0.03%, the Nasdaq 100 rose by 1.41%, and the Dow Jones Industrial Average saw an uptick of 2.33%.

Higher for Longer—Still?

Midway through last week, we got the Fed minutes from the most recent policy meeting that concluded on May 1st. The minutes showed that “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”

With inflation still sticky, the Fed has telegraphed that further policy tightening could be appropriate should inflation risks materialize. “Participants observed that while inflation had eased over the past year, in recent months there had been a lack of further progress toward the Committee’s 2 percent objective,” the summary stated.

Deflating Sentiment

Given the recent stubborn and mixed inflation metrics from several data points, it is no surprise that consumer sentiment has shifted to the downside. Labor and inflation worries contributed to consumer sentiment dropping 10.5% in May, its lowest reading in almost five months, according to the data released last Friday.

Consumer Sentiment Survey Director Joanne Hsu said, “Consumers expressed particular concern over labor markets; they expect unemployment rates to rise and income growth to slow,” Hsu wrote. “These deteriorating expectations suggest that multiple factors pose downside risk for consumer spending.”

Persistently elevated interest rates are also a factor for credit-hungry Americans absorbing “high” prices for many goods and services.

Oil Slides

Crude oil dropped about 2% last week, posting its biggest weekly drop in a month courtesy of interest rate woes. That sounds like good news heading into the summer driving season, historically known to kick off around Memorial Day.

The average price of regular unleaded gasoline was $3.592 as of 05/27/24, according to AAA, showing some relief at the pump in many parts of the country but not everywhere.

On Monday, in quiet early week holiday trade, oil prices rose over 1%, trading near $78.51 at the last check on Memorial Day. Oil has been quiet recently since tensions and fears in the Middle East have somewhat faded.

This week’s inflation data in the form of Core PCE should be watched heavily for future price direction by oil traders and investors.

Inflation & GDP Data Incoming

It’s a holiday-shortened yet data-heavy week, with the biggie being Core Personal Consumption Expenditures (PCE) on Friday. Last month, the Fed’s preferred inflation gauge showed an increase of 0.3% month-over-month, and expectations are for a tick lower to a 0.2% month-over-month increase this time around.

Core PCE is an important metric right now, as the markets are looking for directional assurance on interest rates given the Fed’s recent hawkish tone.

There are a few others, too: consumer confidence on Tuesday to get things kicked off, weekly unemployment claims (last week’s was light, and markets liked it), then preliminary GDP and pending home sales on Thursday.

The Takeaway

Mixed messaging was the theme last week, as investors wonder if the Fed is doing a 180 on tone. The Fed’s intentions have been well-telegraphed, and Friday’s Core PCE will be what the market at large will look towards this week. After that, the next piece of data, and the next. Of course, most assets and investors want rate cuts, and as of last week’s market close, it looks like September is where the current probabilities are, with a 49.4% chance of a rate cut versus 10.2% in July, according to the CME FedWatch Tool.

That said, if inflation and elevated interest rates were to dictate the mindset of collective long-term investors, they would have missed out on some serious capital appreciation over the last two years — just look at the major stock market averages.

Thank you for reading!

The Trademark Capital^® Team

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