Stocks Reach Record Highs on Mixed Inflation Data

May 20, 2024

Market Data as of Week Ending: 5/17/2024 unless noted otherwise

U.S. equity markets climbed to record highs last week as concerns around inflation and interest rates were mitigated. The S&P 500 increased 1.60%, while the Dow Jones Industrial Average closed above the 40,000-point threshold for the first time. Growth stocks outperformed value for the week, seemingly due to the lower implied discount on future earnings. Nine of the eleven S&P 500 sectors ended the week in the green, with information technology and the rate-sensitive real estate sector leading the way, followed by health care and financials. The consumer discretionary sector continues to struggle, ending the week lower after the disappointing retail sales report. Developed foreign markets and emerging markets had a strong week, outperforming domestic equities.

Yields fell last week on signs of moderating inflation and economic activity. The 10-year treasury fell to 4.42%, while the 2-year treasury settled the week five basis points lower at 4.82%. Fixed income performance was positive across the board, with long-duration bonds outperforming short-duration bonds. Yields on U.S. Corporates and High Yields came in last week to 5.47% and 8.03%, respectively.

Economic data for the week was headlined by several key inflation readings. On Tuesday, the Producer Price Index rose a surprising 0.5%, higher than the forecasted 0.3% increase. On Wednesday, the Consumer Price Index rose 0.3%, below expectations, and brought the year-over-year inflation rate to 3.4% from 3.5%. Retail sales were flat in April, below the expected 0.4% gain, as auto and internet sales were weak. The New York Fed’s Empire State manufacturing index fell 1.3 points in May to negative 15.6 as unfilled orders ticked up. New home construction rose 5.7% in April, recovering from the sharp plunge the month before. Import prices rose for the fourth month in a row and at its fastest pace in two years in April. U.S leading economic indicators fell 0.6% in April, marking the second negative month in a row due to weaker business orders and fewer permits for new home builds.

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