June 15, 2024 Market Update

It was a week of records for the U.S. stock market.  The Nasdaq hit 5 straight record highs in five days to close the week, while the S&P 500 Index posted 4 record highs earlier during the week before closing fractionally lower on Friday.  The Dow Jones Industrial Average on the other hand, dropped by a modest 0.5%.

The bond markets continued their positive run after getting a boost from cooler than expected inflation data for May released earlier this week.  The reports reset the Fed’s rate cut expectations leading treasury yields to drop across the curve.  As a result, the U.S. bond market rose 1.31% during the week, based on Vanguard Total Bond Market ETF (BND), a proxy for investment-grade corporate and government fixed-income securities.

The Labor Department announced on Wednesday that the Consumer Price Index (CPI)—a measure of the costs of goods and services across the economy — rose by 3.3% in May from a year earlier, slightly lower than April’s 3.4% increase.  Core CPI, which excludes volatile food and energy items, increased 0.2% for the month and 3.4% from a year ago, compared with projections of 0.3% and 3.5%, respectively.

Despite the better-than-expected inflation report, the Federal Reserve announced shortly after the release of the CPI data that it was reducing the number of times it expects to cut interest rates from three at the start of the year to just one now.  Federal Reserve Chairman Jerome Powell said at a press conference following the announcement that May’s CPI data was “a step in the right direction... but you don’t want to be too motivated by any single data point.”  For example, the labor market has remained resilient notwithstanding high interest rates, although more recent data suggest that this could be about to change.

America’s central bankers are determined not to repeat past mistakes by cutting rates too soon.  As a result, they won’t do so until they are convinced inflation is on track to return to their 2% target rate.  Whether they will be able to get the timing right remains an open question. 

That’s all for now.  Have a great weekend and invest wisely my friends.