Weekly Market Update: May 20, 2024

Alex Ralicki |

Progress on the inflation front has proven elusive thus far in 2024. True, the April Consumer Price Index (CPI) slowed a bit following a sharp spike in March. However, producer (wholesale) prices came in stronger than expected last month and the overall pace of consumer price growth is still running above the central bank’s comfort level. Treasury yields did retreat on the April inflation numbers, but not enough progress was likely made for the Federal Reserve to consider pivoting on the monetary policy front in the near term.

The consumer sector is still dealing with high prices, even if increases have slowed a bit. The CPI and the core CPI, which excludes food and energy, each rose 0.3% in April, a modest improvement from the March core increase of 0.4%. On a 12-month basis, the CPI and core CPI advanced 3.4% and 3.6%, respectively. The CPI price data, though a bit cooler than the prior-month tallies, indicate that the Federal Reserve is still having a hard time clearing that last hurdle of bringing price growth closer to its target rate of 2%. The level of retail prices has seemed to cause some spending fatigue in the consumer sector. On point, April retail sales were unchanged, coming in below forecast.

The Producer Price Index (PPI) moved in the wrong direction last month. The PPI and the core PPI each rose 0.5%. On a one-year basis, the PPI and the core PPI increased 2.2% and 2.4%, respectively. Both 12-month figures were above forecasts, with the former representing the biggest increase since last August.

Meantime, first-quarter earnings season was a success for Corporate America. Nearly 80% of the S&P 500 companies reported positive earnings surprises, with profit growth averaging north of 5%. It marked the biggest gain for them since the second quarter of 2022 and such was needed to justify the high price-to-earnings valuations entering earnings season.

Conclusion: With continued uncertainty about if and when the Federal Reserve will reverse monetary policy course, volatility in the U.S. equity and bond markets can’t be ruled out. In this environment, we still recommend a portfolio led by high-quality companies.  


Source: ValueLine.com