Thirty days ago, equities were suggesting doom and despair. Today the inverse as the S & P 500 has recaptured its April tariff induced decline as the S & P 500 had its best May since 1990. Treasuries, however, fell in price, their first monthly drop this year. The dollar declined for the fifth consecutive month.
What will happen in June?
Friday’s data indicated the economy is still robust and inflationary pressures are not rising because of the tariffs.
The Federal Reserve’s preferred measure of inflation, the core PCE, increased 0.1% from a month earlier. Compared with a year earlier, core inflation rose 2.5% from April 2024, the smallest annual advance in more than four years.
The data is suggesting many companies are still absorbing the increased costs of the tariffs; however, some retailers including Walmart and Macy’s have indicated that “soon” consumers will start to see price hikes.
Consumer sentiment rebounded in late May from the lowest reading on record and long-term inflation expectations retreated nominally as concerns about the economy eased after the rollback of Chinese tariffs.
Commenting about inflation, the Survey indicated consumers expect costs rising at an annualized 4.2% pace over the next five to ten years, down from 4.4% the prior month and the first decline this year.
Consumers expect prices to rise 6.6% over the next year, up modestly from the 6.5% rate seen a month earlier.
It is widely expected that the data will begin to deteriorate this month. This week several top tier “hard” statistics are release including the ISM Manufacturing and Service Indices, factory and durable goods orders, JOLTS Job openings, the release of the Biege Book, productivity data, the ADP Private sector employment survey and the BLS labor report.
How will this data be interpreted?
The narrative is suggesting doom, the market suggests all is/was just noise.
Commenting about Friday’s equity action, technology stocks fell on reports that the Administration plan to broaden restrictions on China’s technology sector. A new variable has been perhaps introduced. The narrative is rising the President is all bark and no bite. Will he take action to suggest otherwise?
Last night the foreign markets were down. London was up 0.02%, Paris down 0.65% and Frankfurt down 0.46%. China was down 0.47%, Japan down 1.30% and Hang Seng down 0.57%.
Futures are down about 0.35% on trade tensions. The dollar is down another 0.4%, extending declines into a sixth consecutive month. The 10-year is off 7/32 to yield 4.43%.
