Dow advanced 250, advancers over decliners better than 2-1 & NAZ was up 102. The MLP index remained in the 287s & the REIT index stayed in the 376s. Junk bond funds inched higher & Treasuries crawled higher, reducing yields slightly (more below). Oil slid lower in the 81s following recent strength & gold was steady at 2336.
Dow Jones Industrials
An inflation measure closely watched by the Federal Reserve held steady in May as elevated prices continue to weigh on Ms of Americans. The personal consumption expenditures (PCE) index showed that prices were unchanged from the previous month, according to the Labor Dept. On an annual basis, prices climbed 2.6%. Both of those figures are in line with expectations. In another sign that inflation remains stubbornly high, core prices, which strip out the more volatile measurements of food & energy, climbed 0.1% from the previous month. From a year ago, prices are up 2.6%, the slowest annual rate since Mar 2021. While the Fed is targeting the PCE headline figure as it tries to wrestle consumer prices back to 2%, Chair Jerome Powell previously told reporters that core data is actually a better indicator of inflation. Both the core & headline numbers point to inflation that is still running well above the Fed's preferred 2% target. A 0.4% decline in the prices of goods helped to offset a 0.2% increase in the cost of services. Food prices rose 0.1% over the course of May, while energy prices tumbled 2.1%. High inflation has created severe financial pressures for most US households, which are forced to pay more for everyday necessities like food & rent. The burden is disproportionately borne by low-income Americans, whose already-stretched paychecks are heavily affected by price fluctuations. Other figures showed that consumer spending increased just 0.2% in May, below both the 0.3% estimate. The lower-than-expected figure suggests that Americans are pulling back on spending as they face steeper prices. Many economists anticipate that spending will slow further in the coming months as consumers continue to grapple with expensive goods, high interest rates & the resumption of federal student loan payments.
Inflation measure closely watched by the Fed rises 2.6% in May
US GDP increased at an annual rate of 1.4% in the first qtr of 2024, data from the Bureau of Economic Analysis (BEA) found. This increase is a sign the economy is solid, but not growing at a substantial pace. This is a slight slowdown from the previously estimated 1.6% GDP increase for the first qtr. Last year, in the 4th qtr of 2023, GDP increased by 3.4%. Compared to last year, economic growth is slowing. The slowdown is largely due to more cautious consumers. Consumers haven't had the freedom to spend in recent months, with rising debt levels & high inflation squeezing wallets. Compared to the 4th qtr, the deceleration in GDP reflected slowdowns in exports & gov spending, on top of less consumer spending. This decrease was offset by imports & an acceleration in residential fixed investment.
Q1 GDP slows more than previously estimated as inflation concerns linger
The 10-year Treasury yield was little changed as investors digested a key inflation measure that came in as expected. The 10-year Treasury yield was down by 2 basis points at 4.267% & the 2-year Treasury yield was last at 4.681% after falling more than 3 basis points. Yields & prices move in opposite directions & 1 basis point equals 0.01%. The May personal consumption expenditures price index, which is the Federal Reserve's preferred inflation gauge, showed a gain of 0.1% for the month, & an increase of 2.6% from a year ago, the Commerce Dept reported. The data comes as uncertainty about what could be next for interest rates has persisted. Federal Reserve policymakers have frequently indicated they would only move to cut rates once data showed that inflation was easing toward the 2% target. Markets were last pricing in the chance of 2 qtr-percentage point rate cuts this year, with the first likely to come in Sep, according to CME Group's FedWatch tool. Earlier in the week, Fed Governor Michelle Bowman also suggested that she was open to a further rate increase, depending on how inflation developed.
10-year Treasury yield falls slightly after May inflation measure comes in as expected
The inflation news was good, but short of great. Going forward, modest levels of inflation should be expected. What is influencing consumer spending are prices that are substantially higher than just a few years ago. That hurts. The chart above shows Dow has been trending sideways for 3 months.
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