Stocks Up on Key Tech Earnings; Bonds Slide on Inflation Data

The Dow (+0.7%), NASDAQ (+4.2%) and S&P 500 (+2.7%) rallied last week, breaking a 3-week losing streak and a lousy start to April and the 2nd quarter.  Meanwhile, taxable bonds and tax-free municipal bonds lost 0.1% and 0.3%, respectively.  These losses came as the 10-year Treasury yield rose 0.06% to finish the week at 4.67%.

There was a mixed bag of economic data reported last week.  Let’s start with the bad news so we can finish on a positive note.  First quarter Gross Domestic Product (GDP – a measure of the economy) grew a disappointing 1.6%, well below the 2.4% expected.  Along with that report was the quarterly inflation gauge – the Fed-favored Personal Consumption Expenditures (PCE) – which came in at 3.8%, well above the prior two quarters at about 2.0%.  See the chart below.  The combination of these reports suggest that higher interest rates are showing their impact on the consumer, and inflation is making a turn in the wrong direction.

On a more positive note, big tech earnings from Microsoft and Google caused their shares and other tech stocks in the NASDAQ to rise sharply, offsetting a disappointing guidance from Meta (formerly Facebook) earlier in the week.  We are now in the middle of earnings season, as corporations are reporting their earnings from the first quarter.  More importantly, investors seem to be paying closer attention to their forecasts, as those forecasts are either rewarding or punishing their stock prices.  In our professional opinion, it’s best to not watch the markets on a daily basis, as that can (and will?) drive you nuts.  The good news is that the economy continues to remain strong, but a strong economy can promote inflation, which is not good.  It’s the Fed’s job to balance the two.  Good luck with that task!

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