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Market Recap – June 6, 2024

Keel Point

June 3, 2024

Last Friday’s release of April Personal Consumption Expenditures data showed modest improvement in core PCE inflation and slowing real spending. This suggests second-quarter consumption and GDP could be weaker than previously expected.  Financial markets reacted positively, with 10-year Treasury yields declining from mid-week highs and S&P 500 stock prices up 5.16% for the month of May and up 10.64% so far in 2024. 

  • The core PCE deflator increased by 0.2% m/m last month and was unchanged at 2.8% over the past 12 months. This turnaround from first quarter higher inflation was largely expected and represents better news than we saw in the first quarter. Both headline and core inflation were unchanged in y/y terms.
  • The weaker tone of both the spending and PCE inflation data in April are necessary first steps in achieving the inflation improvement the Fed needs to begin cutting interest rates later this year.
  • U.S. labor productivity increased by 0.3% in Q1, but that was enough to push the year-over-year number to a remarkably strong 2.9%. If sustained, productivity growth at that elevated level would allow strong economic growth, rising real incomes and falling inflation. (Axios)
  • European inflation improvements are expected to lead to the European Central Bank cutting rates at their next meeting.

Last Friday’s big surprise was the 0.1% m/m decline in April real consumption, and it has caused readjustments in second quarter GDP growth forecasts. 

  • Noting, in addition, the downward revisions to real consumption in earlier months, Capital Economics believes second-quarter consumption growth will be lower, and it is reducing its expected Q-2 GDP growth estimates to 1.5%.
  • The Atlanta Fed’s GDPNow estimate for Q-2 annualized GDP growth was also reduced last week to 2.7% from 3.5% the prior week, while Goldman Sachs raised its Q-2 annualized GDP forecast to 3.2% reflecting strong business capital expenditures and U.S. durable goods orders being up three months in a row.
  • Surveys of independent and smaller businesses show small business hiring has weakened. New employment gains for May are expected to be only 175,000. The unemployment rate should remain at 3.9%, and wage growth should be unchanged at 3.9%.

Disclosure:  Securities offered through Keel Point Capital, LLC, Member FINRA and SIPC.  Brokerage and Investment Advisory Services are offered under the Keel Point brand. Investment Advisory Services offered by Keel Point, LLC, an affiliate of Keel Point Capital, LLC. While reasonable efforts have been made to provide data from sources considered to be reliable, no guarantee of accuracy is given. Keel Point does not give tax, accounting, regulatory, or legal advice to its clients.

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