Major U.S. indices rallied last week after a seven-week losing streak, the longest for the S&P 500 since 2001. A few themes have emerged from economic releases, corporate earnings results, and consumer behaviors.
- Minutes from the Federal Open Market Committee (FOMC) meeting in May showed that the committee remained focused on their long-term 2% inflation goal. The FOMC’s projection for Personal Consumption Expenditures (PCE) was revised up slightly for 2022-2023 due in part to the slower resolution of supply and demand imbalances. However, the committee members all agreed that the U.S. economy remained strong. Participants established that their current stance was appropriate in the near term but that a restrictive stance may be warranted in the future if inflation persists well above target.
- April Core PCE was in line with expectations and an improvement from March. Despite year-over-year PCE remaining elevated, some investors are optimistic that the decline between March and April could suggest peak inflation.
- The dispersion among retail earnings has highlighted that inflation and high energy costs are impacting consumer behavior but that the consumer is still spending. Bargain and luxury brands as well as pure plays were largely able to remain healthy in the quarter while general merchandise struggled.
Despite the macro headwinds and the continued tightening of financial conditions by the Fed, the economy and the consumer have remained resilient.
A look back
- Global stocks rallied, with the MSCI ACWI gaining 5%, its strongest performance in 10 weeks. U.S. stocks gained 6.6%, outpacing their international developed and emerging market peers.
- 10-year U.S. Treasury yields dropped to 2.74%, and the spread between the 10-year and 2-year yields steepened by six basis points (0.06%).
- April Core PCE, the Federal Reserve’s (Fed) preferred inflation gauge, printed in line with estimates at 4.9%. The number was an improvement from 5.2% in March, but well above the Fed’s 2% target.
A look ahead
- From earnings calls this quarter, margin protection has become a top theme to monitor as input costs have increased from inflation while demand from the consumer has remained strong.
- Multiple Fed officials will take the stage this week including Vice Chair Brainard, Governor Waller, and three Regional Bank presidents.
- Economic releases: Beige Book, Nonfarm & Private Payrolls, Consumer Confidence, Factory Orders, FHFA Home Prices, ISM Manufacturing, JOLTS Job Openings, and the Unemployment Rate.