Major U.S. stock indexes finished in a mixed fashion last week as inflation ticked lower for the tenth consecutive month.
Technology was in favor versus industrials last week. Tallying last week, the S&P 500 fell by 0.29%, the Nasdaq 100 gained 0.61%, and the Dow Jones Industrial Average decreased by 1.11%.
Inflation Deceleration
The latest data for April showed inflation falling to an increase of 4.9% year-over-year, just one tick lower than market expectations.
The 4.9% rise was the lowest annual rise since April 2021 and marked the tenth straight month of declines. On a monthly basis, consumer prices advanced 0.4%, in line with the Dow Jones estimate.
Excluding volatile food and energy, Core CPI rose 0.4% monthly and 5.5% from a year ago, both in line with expectations.
Notable pockets of deceleration in the inflation data included groceries (dropping for a second consecutive month), health insurance, major appliances, airline fares, and hotel prices.
Data Interpretation
While inflation cooled again, it didn’t fall enough to excite bulls. Falling prices are healthy overall, of course. But concerns remain, including sideways price action of the broader markets, a potential debt ceiling breach, Fed uncertainty, and a consumer that no doubt needs more inflation relief.
It seems that a slight tick lower in inflation isn’t enough in and of itself to get the broader stock indexes to break out of their recent trading range to the upside. It feels like some other catalyst is needed.
Regardless, volatility remains low, and the downside has been limited. This type of trading action is very encouraging, given the banking turmoil that has recently been in focus.
Government Bond Yields
In line with narrow trading ranges in major U.S. stock indexes, government bond yields traded quietly last week too.
Tens: The 10-year yield finished near 3.463%, closing the week just 0.46% lower than the previous week’s close of 3.447%. Markets sure have been quiet.
Short-Term Bills: As the debt ceiling showdown intensifies, short-term bill yields due over the summer have been increasing lately. The rise in T-bill yields maturing around the time of the “X-date” of a potential U.S. default has been persistent. So investors have avoided parking cash in these maturities, and the one-month bill yield has been rising as a result.
Legendary bond investor Bill Gross (also known as the Bond King) suggested buying short-term treasuries, namely one- and two-month bills, with his outlook being that the debt ceiling standoff will be resolved.
“It’s ridiculous. It is always resolved, not that it is a 100% chance, but I think it gets resolved,” Gross said on Bloomberg Television’s ETF IQ Monday.
Oil Slides
Crude oil futures for June delivery fell for the fourth consecutive week on the heels of a firmer dollar and demand concerns. Last week’s declines were muted, with the June crude contract falling 1.82%, settling at $70.04.
Lower crude oil has translated into lower prices for gasoline, too. The U.S. national average is $3.534 as of May 14th, according to data from AAA. It’s good news for drivers, with the summer driving season approaching. Memorial Day is right around the corner!
The Beat Goes on
Headlines are headlines. Narratives are narratives. Debt crisis looming, impending recession, high interest rates, the Fed, etc.
One thing is for certain. Time marches on. It is the nature of financial markets to have ongoing themes, fears, volatility and lack of volatility (like right now), and numerous other factors as part of the whole.
But as time passes, long-term investors have an advantage historically. The ability to stick to a disciplined plan seems to separate the haves from the have-nots. Time marches on.
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