Hello,

After months of simmering inflation reports, it looks like inflation finally eased slightly in April.¹
 
Are prices stabilizing? Can we breathe a sigh of relief?
 
Let's dig a little deeper.
 
What’s inside the latest inflation report?
 
Economists typically look at two major inflation gauges: the Consumer Price Index (CPI) and the Personal Consumption Expenditures Index (PCE).
 
In the latest CPI report, we learned that overall "headline" inflation rose 3.4% (year-over-year) in April.¹
 
Analysts also look at "core" inflation by stripping out volatile food and energy costs - that metric climbed 3.6%, the lowest since April 2021.
 
Why? Because food and energy have very volatile prices that can skew monthly data.
 
The chart below shows just how far inflation has come down since its 2022 peak.

Are we finally done with stubborn inflation? We think it's still too soon to call.
 
Let’s see what the next few months show before celebrating.
 
We know inflation is still higher than anyone would like. But, the April data is an improvement after months of hotter-than-expected data.
 
It could also be an optimistic sign that the Fed may still be able to achieve its 2% inflation target.
 
What does tamer inflation mean for investors?
 
Lower inflation points to a slowing economy and could give the Fed room to cut interest rates this year.
 
Traders have been telling themselves (and each other) that lower rates are coming in 2024 so they cheered the latest data.¹
 
Stubborn inflation is the one obstacle holding the Fed back from lowering rates so any nudge in the right direction often triggers a rally.
 
Other signs also point to a cooling economy.
 
Multiple indicators of labor market strength are trending downward, which suggests that growth is slowing.
 
Just 175,000 jobs were added in April, missing expectations. Earlier jobs numbers were also revised downward, which often means early estimates were too optimistic.²
 
Wage growth, another sign of a strong labor market, has also slowed significantly in recent months.³
 
Wage gains surged in 2021 and 2022 as employers struggled to attract workers but have been slowing down since.




So, what does the latest data mean for you?
 
Markets are highly influenced by the timeline of future rate hikes this year.
 
That means news that the economy is slowing down may be treated as good news because it continues to build the case for lower rates.
 
On the other hand, signs that the Fed might keep rates high (or even raise them) may provoke more selloffs.
 
For long-term investors, these gyrations don’t make much difference to our goals and outcomes.
 
We’re more interested in trends and the bigger picture.
 
But that doesn't mean we ignore what's happening week-to-week or month-to-month.
 
We’re watching the data closely and we'll pass along what's relevant.
 
Questions? Concerns? Just hit "reply" and we'll set up a time to chat.
 
Be well,


Your Eagle Wealth Team

The Week on Wall Street

Last week's stock performance was mixed, following investors' reaction to the Fed's May meeting minutes, while a handful of mega-cap tech companies created a buzz with their news.
 

Market Splits

Stocks began trading in a narrow band last week. Still, mega-cap tech names rallied in anticipation of the Q1 corporate report from a key company that makes semiconductors for artificial intelligence (AI). The enthusiasm lifted the Nasdaq to fresh records.

Federal Reserve news mid-week unsettled investors, who reacted to Federal Open Market Committee meeting notes that stated some Fed officials worried over the lack of progress on inflation.¹

Technology was the sole winning group for the whole week, with all other Standard & Poor’s 500 industry sectors ending in the red.²

Bucking The Trend?

One of the handful of companies bucking the trend last week was Nvidia.

The semiconductor maker – the fifth largest company in the S&P 500 by market capitalization, thanks to their prominent role in AI – reported that its Q1 sales tripled from a year ago. The company also announced a 10-to-1 stock split. The news pushed its market cap to over $2 trillion.³

The companies mentioned are for informational purposes only. It should not be considered a solicitation for the purchase or sale of the securities.

To some on Wall Street, Nvidia is the bellwether for the AI industry. By one estimate, the entire AI market is nearly $300 billion for this year – more than 3X the market’s size of $95 billion just three years ago. By 2030, that estimate may reach $1.8 trillion.⁴

Remember that forecasts rely on assumptions and may undergo revisions over time. Financial, economic, political, and regulatory issues may cause the actual results to differ from the expectations expressed in the forecast.

^{Source: YCharts.com, May 25, 2024. Weekly performance is measured from Monday, May 20, to Friday, May 24. TR = total return for the index, which includes any dividends as well as any other cash distributions during the period. Treasury note yield is expressed in basis points.}
 

1. https://www.cnbc.com/2024/05/15/cpi-inflation-april-2024-consumer-prices-rose-0point3percent-in-april.html

2. https://www.bls.gov/news.release/empsit.nr0.htm

3. https://www.atlantafed.org/chcs/wage-growth-tracker

Chart sources: https://fred.stlouisfed.org/series/CPIAUCNS#0, https://fred.stlouisfed.org/series/CPILFENS, https://www.atlantafed.org/chcs/wage-growth-tracker

4. The Wall Street Journal, May 22, 2024

5. Sectorspdrs.com, May 24, 2024

6. The Wall Street Journal, May 22, 2024

7. Statista.com, May 24, 2024

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The forecasts or forward-looking statements are based on assumptions, may not materialize, and are subject to revision without notice.

The market indexes discussed are unmanaged, and generally, considered representative of their respective markets. Index performance is not indicative of the past performance of a particular investment. Indexes do not incur management fees, costs, and expenses. Individuals cannot directly invest in unmanaged indexes. Past performance does not guarantee future results.

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