Stocks Indices Reach Record Highs on Tame Inflation; Bonds Also Rally

The Dow (+1.2%), NASDAQ (+2.1%) and S&P 500 (+1.6%) exhibited moderately strong gains last week, as each index reached record highs that were previously set in March 2024.  Taxable bonds also rallied about 0.6%, as the 10-year Treasury yield fell 0.08% to end the week at 4.42%.  Tax free municipal bonds didn’t fare as well, as they ended the week roughly unchanged.

As noted in last week’s recap, we were expecting a slew of economic data last week, and most of it came in favorably as it related to inflation.  While the Producer Price Index (PPI) came in higher than expected, investors seemed to shrug that off.  Meanwhile, the Consumer Price Index was up slightly less than expected, posting a year over year (Y/Y) gain of 3.6%, the lowest since April 2021.  Retail sales came in flat, much lower than expected, another signal that the consumer is slowing down spending.  Lastly, the Leading Economic Indicators (LEIs) fell 0.6% in April, and has remained negative for almost two years.  That was more than March, but “less bad” in the last six months than the prior six months.  LEIs have historically been a reliable predictor of a recession, but this time it seems to be bucking the trend ….. so far.

For quite some time now, the markets have been driven by factors associated with inflation.  It’s not just that inflation is bad for the economy, but it serves as the driver for the Fed to raise or lower interest rates, which is what investors seem to care most about.  So, when inflation goes down, it gives reason for the Fed to not raise interest rates, or even lower them, and that’s what investors are seeking.  With retail sales being slow, that implies the consumer is slowing, and elevated consumer spending is a major cause of inflation.  As for this week, there is very little economic data being reported other than Nvidia’s corporate earnings report.

^{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.}