Stock Indices Mixed But Mostly Higher; Bonds Advance

The Dow (-0.1%), NASDAQ (+1.7%), and S&P 500 (+1.0%) exhibited mixed results last week.  Meanwhile, taxable bonds gained 0.4% and tax-free municipal bonds gained about 0.2%.  The 10-year Treasury yield fell 0.08% to finish the week at 4.18%, representing the uptick in bond prices.

There was a mixed bag of economic data last week, but none of that stopped the rise in the technology stocks.  This is evidenced by the 1.7% rise in the NASDAQ, but the Dow falling marginally.  Durable goods order and consumer confidence slipped, but the Fed-favored inflation gauge (Personal Consumption Expenditures – PCE) was in-line with expectations, and was met favorably by investors.  The inflation values are very important, because that is what the Fed uses to determine if and how much they will raise or lower interest rates.  The Fed’s actions have an enormous impact on the stock and bond markets. 

The chart below shows the two commonly regarded inflation measures.  The chart shows the rapid rise in inflation beginning in 2021, peaking in 2022, and falling sharply from there.  However, the Fed has made it clear that they want to see the PCE at 2%, and we aren’t there yet.  As a result, the bond market has now priced in only three rate cuts in 2024, with the first one occurring in June.  This is quite different than only 2 months ago when investors were anticipating six rate cuts in 2024 starting in March.  In short, investors are realizing the Fed is not convinced that inflation is in check yet.

^{Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.}

^{The economic forecasts set forth in this material may not develop as predicted and there can be no guarantee that strategies promoted will be successful.}