After PCE inflation, US market Rises or Dips?
The investment adage of “Sell in May and go away” is no longer true.
US stocks wrapped the last trading day of May 2024, on a high note.
It notched the 6th positive month in the last seven for all three major indexes. (see below)
US 3 Composite Indexes - May performances
Market - May performance:
DJIA: +2.07% (+783.03 to 38,686.32).
S&P 500: +5.16% (+259.12 to 5,277.51).
Nasdaq: +7.24% (+1,129.54 to 16,735.02).
The major indexes all broke records in May 2024:
Both S&P 500 and Nasdaq posted their best May performances since 2003.
While the Dow saw its best May since 2020.
Core PCE - April 2024.
Was Friday’s final push to close May on another “high” be attributed to US personal consumption expenditure (PCE) report out before start of trading day? (see below)
Latest reading of the Fed's preferred inflation gauge showed inflation slowed in April as prices increased in line with Wall Street expectations.
MoM core PCE rose +0.2% in April, in line with Wall Street's expectations and slower than the +0.3% increase in March.
This is also the slowest month-over-month increase for the index of 2024.
YoY core PCE was up 2.8% over the prior year in April, in line with estimates and unchanged from the annual increase seen in the last 2 months.
US GDP - 2nd estimates.
Coupled with the release of US’s Q1 2024 GDP 2nd estimates on Thursday, there is positivity seeping through the US market. (see below)
US economy grew slower in Q1 2024 than estimated.
On 25 Apr 2024, the 1st estimate was 1.6%. This was 36% lower than market consensus of 2.5% and Q4 2023’s 3.4%.
On 30 May 2024, 2nd estimate was 1.3%. This was 18.75% lower than analysts’ revised forecast of 1.6%.
This made 2nd estimates, the lowest since Q2 2022 (-0.6%) and it falls below the Fed's target (1.8%) for stable economic growth without inflation.
Great news indeed !
CME FedWatch Tool (latest)
With (1) a lower GDP 2nd estimates and (2) a stagnant core PCE data, the chance of a September 2024 interest cut (suddenly became within reach. (see below)
On 19 Apr 2024, CME FedWatch tool forecast November and December as the most probable month for a possible -0.25% interest cut. (see above)
Back then, September was not even a consideration.
Based off recent April data, CME FedWatch tool (01 Jun 2024) predicts a 47% chance that the Fed will cut interest by -0.25% in September 2024. (see above)
June In-store ?
With both CPI and PCE inflation “out of the way”, how will US market perform in June 2024?
According to FactSet, 96% of S&P 500 companies have reported their Q1 earnings.
Below are:
Companies that will be releasing their earnings this week.
Economic reports to be published. (see below)
As it is the tail end of Q1 earnings season, not a lot of companies’ earnings would excite market investors, except for below few: (see below)
$CrowdStrike Holdings, Inc.(CRWD)$ - Tue, 04 Jun 2024 - PM.
$Lululemon Athletica(LULU)$ - Wed, 05 Jun 2024, PM.
$NIO Inc.(NIO)$ - Thu, 06 Jun 2024, AM.
$Docusign(DOCU)$ - Thu, 06 Jun 2024, PM.
Economic Reports.
Important reports out this week:
S&P Flash US Manufacturing PMI - Mon, 03 Jun 2024.
Jobs Opening and Labour Turnover surveys (JOLTs) - Tue, 04 Jun 2024.
ADP employment payroll - Wed, 05 Jun 2024.
US weekly jobless claims - Thu, 06 Jun 2024.
US Non-farm payroll - Fri, 07 Jun 2024.
Will the jobs-related reports show that US inflation is continuing to slow down and boost investors’ confidence in US stock market in the process?
I think REPORTS exert bigger influence over US market vs corporates’ earnings this week!
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Do you think remaining companies’ earnings will lift US market higher this week ?
Do you think jobs reports out this week will exert a bigger influence over US market?
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