The Week in Review: May 20, 2024
How Do Investors Spell Relief?
Investors celebrated an ‘in line with expectations’ CPI that suggested the rate of inflation isn’t accelerating. It’s a small win, but it was enough to send the three major market indexes, the Dow, the Nasdaq, and the S&P 500, to new highs.
Last Wednesday, the U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) rose 0.3% in April. The core CPI, which minuses food and energy, also rose 0.3%. Both matched analyst expectations, according to the Wall Street Journal.
The core CPI slowed from 3.8% annually in March to 3.6% in April, the slowest pace since early 2021. The headline CPI eased to 3.4% annually from 3.5%.
So, why would stocks rally on a report that didn’t surprise anyone? There were concerns that we’d see another hot CPI, something greater than 0.3% for the core rate.
That didn’t happen; call it a relief rally.
As the graphic illustrates, the monthly change in core inflation gradually increased in the second half of 2003 and peaked in January.
While April’s milder reading is just one month (and it’s difficult to establish a downward trend with April’s reading firmly), the monthly numbers are no longer accelerating. And that’s good news.
But it’s also a hollow victory. A 0.3% rate over the next 12 months, if it were to occur, annualizes to about 4%. Inflation remains too high, and the current rate is not conducive to a reduction in interest rates unless the economy unexpectedly weakens.
However, let’s not be overly pessimistic either.
While a trip to the store or a restaurant may reveal another price hike, a stable fed funds rate and an expanding economy have helped drive stocks to new highs this year. On Friday, the Dow closed at 40,003.59, a new high and the first-ever close above 40,000 (MarketWatch).
That’s in stark contrast to what was happening two years ago.
Market Summary
Two for the Road
Novo Nordisk’s development of Semaglutide, the key ingredient in diabetes and obesity drugs Ozempic and Wegovy, has made it Europe’s most valuable company. Its market capitalization of more than $570 billion is bigger than the annual economic output of its home country, Denmark. - Bloomberg, May 1, 2024
According to IMF projections, the U.S. will account for 26.3% of global GDP in 2024, the highest level in almost two decades.- The Wall Street Journal, April 25, 2024
Please do not hesitate to contact me with any questions or concerns. I hope you have a wonderful week!
Bill Stordahl, CFP®
Managing Director
Stordahl Capital Management
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1. The Dow Jones Industrials Average is an unmanaged index of 30 major companies which cannot be invested into directly. Past performance does not guarantee future results.
2. The NASDAQ Composite is an unmanaged index of companies which cannot be invested into directly. Past performance does not guarantee future results.
3. The S&P 500 Index is an unmanaged index of 500 larger companies which cannot be invested into directly. Past performance does not guarantee future results.
4. The Global Dow is an unmanaged index composed of stocks of 150 top companies. It cannot be invested into directly. Past performance does not guarantee future results.
5. CME Group front-month contract; Prices can and do vary; past performance does not guarantee future results.
6. CME Group continuous contract; Prices can and do vary; past performance does not guarantee future results.