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May 18, 2024 Market Update

U.S. stocks rallied to a new record high during the trading week before pulling back by Friday’s close.  The upside trend, however, remained intact as the S&P 500 Index advanced for a fourth straight week – the market’s longest run of gains so far this year.

The U.S. bond market continues to rally too, based on the Vanguard Total Bond Market ETF (BND), a proxy for investment-grade corporate and government bonds.  The fund posted a 0.60% weekly increase, marking the third-in-a-row weekly rise.

Data published last week provided renewed hopes in some corners that cooling inflation would prompt the Federal Reserve to reduce interest rates sooner than later.  Call me a pessimist, but I have my doubts.

On Wednesday, the Labor Department released its Consumer Price Index (CPI) report for April.  While the report showed that core CPI, which excludes food and energy, dipped to 3.6% — the lowest in three years — a deeper than expected decline.  However, a closer look reveals that the “super core” inflation rate — which excludes food, energy, and housing and is closely watched by the Federal Reserve — remained above 5% for the second consecutive month.

Moreover, wholesale prices, as measured by the Producer Price Index, rose by 0.5% in April from the previous month, exceeding market expectations.  On a year-over-year basis, wholesale inflation increased by 2.2%, marking the largest rise since April 2023.

Comments by Federal Reserve Chair Jerome Powell also don’t suggest the commencement of rate cuts will be accelerated.  On Tuesday he said that the U.S. central bank must remain patient and wait for further evidence of declining inflation before considering lowering interest rates.  “It appears that it will take longer for us to become confident that inflation is moving towards 2% over time,” he commented.  “We believe that maintaining our current stance for an extended period is probably the best course of action,” he said.

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