Inflation and Real Interest Rates Peak?

US stocks rose, led by technology, after the Federal Reserve announced no change to key interest rates at the May meeting but announced its intentions to slow its quantitative tightening (QT) of its balance sheet. Powell also reiterated the central bank’s overall confidence and its base view that inflation is going to fall throughout the year end. Fridays BLS jobs data came in weaker than economists’ predictions setting up the possibility of earlier Fed interest rate cuts. Equity prices rose: DJIA 1.2%, S&P 500 1.3%, NASDAQ Composite 2.0%. After 5 straight monthly gains, the index finished –4.16% lower in April making April the worst month for the index since September 2023.

 

Apple announced earnings post-close Thursday earnings, which were better than feared, discussed their future AI plans, and announced a $110 billion share buyback program and dividend increase.

 

For the first time in memory, Fed chair Powell referenced real-time economic data versus lagging government data in his prepared remarks and press conference.  Those real-time tradeable indicators point to inflation having peaked 2 weeks ago and real- interest rates putting in a seasonal peak as well.  These would be tailwinds for equities in summer. The Citi economic surprise index measuring broad economic data peaked 4-6 weeks ago and is now in its normal seasonal negative trend.

 

Oil prices dropped to more 3-month lows on optimism around a potential ceasefire in the Middle East. Oil prices finished lower at $78.11 and $82.96/bbl, respectively, as crude inventories in the US increased at their fastest weekly pace since March, versus expectations for a decline. Gold prices declined, ending last week lower at $2330.60/troy oz.

 

Click here to watch last week’s Oak Harvest Weekly Stock Talk: S&P500: The “Old Normal”, back to our regularly scheduled program.