Inflation Continues to Moderate, Payrolls on Deck

Performance for Week Ending 6.28.2024:

The Dow Jones Industrial Average (Dow) dipped 0.08%, the Standard & Poor’s 500 Index (S&P 500) lost 0.08% and the Nasdaq Composite Index (NASDAQ) finished up 0.24%. Sector breadth was negative with 7 of the 11 S&P sector groups closing lower. The Energy sector (+2.68%) was the best performer while Materials (-1.11%) was the weakest.

*See below for Index Definitions

MARKET OBSERVATIONS: 6/24/2024  – 6/28/2024

The S&P 500 finished the week modestly lower, breaking a three-week winning streak despite data showing a cooldown in inflation, which in turn, reinforced bets policymakers will have room to cut rates later this year. For the second quarter, the S&P 500 gained 3.92% while the tech-heavy Nasdaq Composite added 8.26%. On Friday, the Commerce Department reported that the core personal consumption and expenditures (PCE) price index—the Federal Reserve’s preferred inflation gauge—rose 0.1% (0.08% unrounded) in May — the smallest increase since November 2020. On a year-over-year basis, core PCE rose 2.6%, down from 2.8% in April and the lowest level since March 2021. While the downtick in inflation is not likely to result in a rate cut at the upcoming July FOMC meeting, it certainly is a step in the right direction and increases the odds of a cut at the September meeting.

Fedspeak: Chicago Fed President Austan Goolsbee welcomed cooling inflation data and said it may be appropriate to start thinking about whether policy is putting too much pressure on the economy. “If we get more months like what we have just seen in the last month on inflation, coupled with slowing conditions in some of the other parts of the real economy, then you would have to start questioning, ‘Should we remain as restrictive as we’ve been?’” Goolsbee told CNBC. Fed Governor Lisa Cook said it will be appropriate to reduce interest rates “at some point,” adding that she expects inflation to improve gradually this year before more rapid progress in 2025. “With significant progress on inflation and the labor market cooling gradually, at some point it will be appropriate to reduce the level of policy restriction to maintain a healthy balance in the economy,” Cook said at the Economic Club of New York. Atlanta Fed President Raphael Bostic said he continues to expect one interest rate cut this year in the fourth quarter, unchanged from his view in March, amid signs inflation has resumed its decline. Bostic cited details within April and May inflation reports as “glimmers” of evidence that price changes are moving to the Fed’s 2% goal, and said he sees risks to the labor market and inflation as becoming more balanced in recent weeks. Bostic’s latest views were included in an essay posted to the Atlanta Fed’s website.

Economic Roundup: US consumer confidence eased due to a more muted outlook for business conditions, the job market, and incomes. The Conference Board’s gauge of sentiment decreased to 100.4 from a downwardly revised 101.3 reading in May. Concern about prices eased this month, though consumers still noted elevated prices for groceries. Consumers’ view of the current labor market improved slightly with 38.1% of consumers saying jobs were “plentiful,” up from 37% in May. New-home sales slumped in May as elevated prices and still-high mortgage rates kept would-be buyers at bay. New single-family home sales decreased 11.3% to a 619K annual pace last month, the slowest since November. Mortgage rates dipped below 7% in mid-June for first time since late March, but they remain more than double their levels from the end of 2021. On the jobs front, continuing jobless claims rose to the highest level since the end of 2021, a potential warning sign that it’s starting to take longer for unemployed people to find a job. Continuing claims, a proxy for the number of people receiving benefits, increased to 1.84 million in the week ended June 15. Meanwhile, first-time claims ticked down to 233K last week. The four-week moving average, which smooths short-term fluctuations, increased to 236K, the highest since September.

The Week Ahead: Employment data will be the focal point of this week’s economic calendar with all eyes expected to be on Friday’s payroll report for the month of June. According to Bloomberg, nonfarm payrolls are forecast to rise 188K, while the unemployment rate is expected to hold steady at 4.0%. The payroll data will be preceded by JOLTS Job Openings on Tuesday and the ADP Employment report on Wednesday. Apart from those reports, signals on employment and prices will come from the ISM Manufacturing and ISM Services released on Monday and Wednesday, respectively. Highlights of the central bank calendar will be four events including a speech by Fed Chair Powell in Sintra, Portugal. On Wednesday the Fed is also scheduled to release the meeting minutes from the June meeting. It will be a light week on the earnings front with just one member of the S&P scheduled to release results. Note: The stock market is scheduled to close early on Wednesday and will be closed on Thursday in observance of the July 4th holiday.

— By Michael Schwager, Chief Market Strategist, Managing Director

Definitions

The Dow Jones Industrial Average is a price-weighted average of 30 blue-chip stocks that are generally defined as the leaders in their industry. It has been a widely followed indicator of the stock market since October 1, 1928.

Wilshire 5000 Total Market Index^SM represents the broadest index for the U.S. equity market, measuring the performance of all U.S. equity securities with readily available price data. The index is comprised of virtually every stock that: the firm's headquarters are based in the U.S.; the stock is actively traded on a U.S. exchange; the stock has widely available pricing information (this disqualifies bulletin board, or over-the-counter stocks). The index is market cap weighted, meaning that the firms with the highest market value account for a larger portion of the index.

Standard and Poor's 500^© Index is a capitalization-weighted index of 500 stocks. The index is designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries.

The NASDAQ Composite Index is a broad-based capitalization-weighted index of stocks in all three NASDAQ tiers: Global Select, Global Market and Capital Market. The index was developed with a base level of 100 as of February 5, 1971.

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