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Financial Market Update – Week of 06/17

June 17, 2024

With CPI and the Fed meeting moving markets last week, it is a good time to keep you informed via a quick update. 

As expected, the Fed kept interest rates unchanged last week at its June policy meeting. The outlook from the Fed via Chair Powell’s commentary during the Q&A session indicated one rate cut to come this year–and markets didn’t mind that. CPI, however, was the main storyline of the week, with data showing prices decelerating overall. 

Markets experienced CPI-fueled gains, as the S&P 500 rose by 1.58%, the Nasdaq 100 tacked on 3.47%, and the Dow Jones Industrial Average decreased by 0.54% for the week.

Consumer Price Index

Markets were all about CPI on the morning of the June meeting, with data showing no increase in pricing for May, and a 3.3% increase in consumer prices from a year ago; both data points 0.1 percentage points below market expectations.

The Core Consumer Price Index (Core CPI), which excludes the impact of volatile food and energy prices, increased by 0.2% compared to April levels. This smaller-than-expected rise was lower than the predicted 0.3% rise. The annual core CPI inflation rate unexpectedly decreased to 3.4% from 3.6% in April, falling below the anticipated 3.5%. Core CPI reached a 40-year high of 6.6% in September 2022.

The verdict? The S&P 500 and Nasdaq 100 loved the softer inflation data and traded near all-time highs. Industrials via the Dow 30 didn’t quite follow suit, but let’s not forget the average dividend yield of these heavyweight blue chips near 2.01% as of June 15th.

Fed: Rates Unchanged

As expected, the Fed left rates unchanged at last week’s June policy meeting, also striking a hawkish-sounding tone for the future direction of Fed interest rate policy.

Regarding rate cut direction, we learned that the Fed is looking for one rate cut in 2024. 

“The question of whether it’s sufficiently restrictive is going to be one we know over time,” Powell said. “But I think for the reasons I talked about at the last press conference and other places, I think the evidence is pretty clear that policy is restrictive and is having, you know, the effects that we would hope for.”

Softer inflation data, a Fed that is telegraphing one potential cut in 2024, and S&P 500 all-time-highs. What’s not to like?

Consumer Confidence Dips

University of Michigan’s monthly Preliminary Consumer Confidence data showed a wilting consumer in June, with sentiment reaching a 7-month low.

Data showed a 65.6 reading; below a forecast of 72.1; indicating a softer consumer.

For context, the Michigan Consumer Sentiment Index is a monthly survey that measures consumer confidence levels in the U.S. regarding the economy, personal finances, business conditions, and buying conditions. The survey is conducted by the University of Michigan. Each month, two reports are released: a preliminary report in the middle of the month and a final report at the end of the month.

Keeping At It

Investors who remained disciplined during a pandemic, inflation, and higher interest rates are now reaping the rewards.

Looking at the present backdrop, last week’s softer-than-expected inflation data in both CPI and PPI is very encouraging in the inflation fight–and the market response is obvious, with both the S&P 500 and Nasdaq 100 closing last week at weekly all-time-closing highs.

After last week’s economic data, this week may be tame; Retail Sales will be in the spotlight to further gauge the consumer.

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