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Market Recap – May 6, 2024

Keel Point

May 6, 2024

The Fed meeting and an across-the-board weaker April jobs report caused volatility in financial markets, which by the end of the week had settled and closed higher on Friday, with the S&P 500 up 0.55% last week and 7.5% year-to-date.    

  • As much as the Fed seems to want to start cutting interest rates, stronger inflation and economic activity have them in a holding pattern until disinflation resumes and the Fed can see a clear path to its 2% inflation target.
  • With core PCE inflation up for each of January and February and March, and its 3-month annualized rate for the first quarter at 4.4%, the Fed can only wait for “greater confidence that inflation is moving sustainably towards 2%.”
  • Elevated core inflation is primarily due to the shelter (housing/lodging) component. Twelve-month core CPI inflation was 3.8% in March, but excluding shelter it was 2.4%. Likewise, core PCE inflation was 2.8% in March, but excluding shelter it was 2.2%. Shelter inflation is difficult to measure accurately, and it has been slow to reflect declining rental rates for new leases.
  • Forward-looking indicators still point to further reduction in shelter and core PCE inflation later this year, which will allow the Fed to begin reducing interest rates after it occurs.

The Fed had also noted previously that the economy was running “hot”, meaning stronger economy, jobs and wage growth, which it believes all contributed to disinflation stalling in the first quarter.  So, the lower Q1 GDP growth, and last Friday’s report of slower job and wage growth in April all are helpful to the Fed starting to cut interest rates, without putting the economy into recession.

  • Non-farm payrolls increased by only 175,000 in April, the unemployment rate ticked up to 3.9% and average hourly earnings growth dipped below 4% y/y.
  • This report of softening in the labor markets – especially wage growth — is good news because the higher first-quarter employment cost index (“ECI”) also reported earlier last week had brought the ECI twelve-month annual growth rate up to 4.4%.

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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