Hope you are all doing well. The rally continues. The S&P 500 recorded its ninth consecutive weekly gain. Technology stocks continue to reassert their leadership position. The NASDAQ finished 2.4% higher for the week, the S&P 500 added 1.4%, and the Dow gained 0.9%. May’s stock market gains were impressive, adding to the huge gains seen in April. The NASDAQ climbed 8.4% in May. The S&P 500 gained 5.1%, and the Dow rose 2.8%. Young MC was in the news this week after pulling out of performing at the Great American State Fair. I have broken down this week’s update using lyrics from his hit song, Bust a Move.
“Could care less about the five you’re blowin'” – Young MC
The markets continue to shrug off price increases. That is the second data point in three weeks that shows U.S. inflation running at the highest level since May 2023. Thursday’s Personal Consumer Expenditures (PCE) Price Index report showed an annual inflation rate of 3.8% in April. Core PCE prices in April rose 0.2% for the month and 3.3% for the year. That’s the most important number as it is the Federal Reserve’s preferred gauge of inflation. The markets didn’t react negatively to the number because annual rates were in line with forecasts. Furthermore, the soft monthly readings provide some hope that the burst in prices over the previous month had begun to ease.
“But every dark tunnel has a light of hope” – Young MC
We got a bit of bad economic news this week. The U.S. economy’s expansion in this year’s first quarter was slower than initially estimated. GDP grew at an annual rate of 1.6% in the January-to-March period, down from an initial estimate of 2.0%. Like inflation data, the GDP data is not as bad as it seems. Economic growth data like inflation has volatile components. Chief among them are inventories and trade flows. As expected, these numbers have been extra sensitive to the constant policy shifts, as businesses adjust to changing tariff rates. As a stock investor, it is important to focus on what drives long-term economic growth. Business fixed investment and consumer household spending drive economic growth. Looking at these two measures, growth has been steadier, averaging a healthier-looking 2.2% over the past six months. Sure, this recent data disappointed. However, durable goods orders show strong capital expenditures, meaning business investment continues to grow. Consumer spending was adjusted lower for the first quarter, but spending edged higher in April. Even as the inflation squeeze was at its worst point. That speaks not only to the resilience of the US consumer and the economy but also to the strength of the labor market. U.S. consumers feel comfortable enough in their ability to make money that they can dip into savings and tax refunds to continue spending even in the face of higher prices.
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