Weekly Market Update: June 3, 2024

Alex Ralicki |

The minutes from the May Federal Open Market Committee (FOMC) meeting showed that the central bank is not in a rush to reverse course on the monetary policy front. In fact, most voting members believe that the benchmark short-term interest rate will need to remain “high for longer” to effectively fight inflation. This threw some cold water on Wall Street’s hopes that a rate reduction is forthcoming. Investors should note that the April reading on the Personal Consumption Expenditures (PCE) Price Index, the assessment of inflation most closely tracked by the Federal Reserve, was due shortly after this report went to press.

Recent economic data have not given the Federal Reserve a reason to begin cutting the federal funds rate. True, there have been signs of some economic fatigue stateside, with higher borrowing costs weighing on the housing sector in April. However, the labor market remains remarkably resilient and this is supporting the consumer even as prices for goods and services remain elevated. On point, consumer sentiment was stronger than expected in May, and April durable goods orders unexpectedly rose, marking the third-straight monthly increase. The rise in durable goods orders, which measures the change in the total value of new orders for long-lasting manufactured goods, is a positive sign for the economy.

The exceptional financial report from semiconductor giant NVIDIA Corporation was the cherry on top of a successful first-quarter earnings season for Corporate America. The heavy demand for NVIDIA’s processing chips also indicates that the race for creating artificial intelligence (AI) products is in high gear and this is serving as a major catalyst for the U.S. technology sector. In all, profits for S&P 500 companies rose 6% in the first quarter, marking the highest year-over-year earnings growth rate since early 2022.

Conclusion: The resilient performance of the U.S. economy, along with a solid first-quarter earnings season, has provided support for equities even as inflation remains stubbornly high and the Fed does not appear to be in a rush to reduce rates. This helped stocks perform well during May, a month that has historically not been strong for equities. 


Source: ValueLine.com