Stocks Show Mixed Results as Inflation Data Comes in Softer; Bonds Down Modestly

Good morning, 

The Dow (-0.1%) and the S&P 500 (-0.1%) exhibited slight losses, while the tech-heavy NASDAQ (+0.2%) experienced modest gains despite two of its largest holdings (Nvidia and Microsoft) finishing the week down.  Meanwhile, taxable bonds were down about 0.5% - 0.8% and tax-free municipal bonds were down around 0.2%.  The 10-year Treasury bond yield rose 0.19% to end the week at 4.44%, which helps explain why bonds lagged for the week.

Last Friday, the Fed-favored inflation gauge, Personal Consumption Expenditures (PCE), was reported and met economists expectations. The core rate, which excludes volatile food and energy prices, produced the lowest year-over-year reading since 2021. This softer inflation data seemed to erase any concerns investors had of a potential Fed interest rate hike and has led investors to believe an interest rate cut is coming sooner rather than later. While we believe the Fed won't cut rates in the near-term, a cut in September seems to certainly be on the table. 

Durable Goods Orders gained slightly in May, however the April numbers were revised down to a 0.2% gain instead of a 0.6% rise that was initially reported. This report, which shows data for orders of goods meant to last more than 3 years, provides evidence that the US economy is continuing to slow due to the higher interest rates. However, the economy is not substantially weakening, and therefore the Fed will continue to look for inflation data to come down before taking action to lower interest rates. 

We have a couple of telling reports coming out this week with both ISM Manufacturing and ISM Services coming out on Monday and Wednesday, respectively. The Labor Report will come out on Friday as well, and we believe the Fed will want to see some weakening in this report as another sign of inflation continuing to slow. Finally, all US markets will be closed on Thursday in observance of Independence Day. 

I hope everyone has a great week and Happy 4th of July! 

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