Investors and traders alike spent the week interpreting several economic data released over the past week. The first two days of the week featured mostly range bound markets as there were no major news releases. Instead, equities, currencies and commodities were stuck in neutral in anticipation of April’s Consumer Price Index (CPI) data.
The April year-over-year CPI figure came in at 4.9 percent, which is the lowest number since June 2021 when the CPI figure was 5 percent. This was slightly lower than what analysts expected, as it was believed that yearly inflation would be 5 percent. In addition, the Bureau of Labor Statistics (BLS) also released the monthly CPI figure for April, which was .4 percent and in line with analyst estimates. Core CPI was also at .4 percent, which was slightly higher than the .3 percent estimate prior to the release of that data.
On Thursday, the monthly Producer Price Index (PPI) and the Core PPI reports were released. Core PPI for April came in at .2 percent while analysts expected that the PPI figure would remain flat when compared to March. The traditional PPI figure was also at .2 percent, which beat expectations of a drop of .2 percent compared to the previous month. Unemployment claims data was also released on Thursday, which showed that there were 264,000 requests for unemployment assistance over the previous week. That figure was also higher than the projected 242,000 claims prior to the report’s release.
On Friday, the University of Michigan released its preliminary consumer sentiment and inflation expectation data. In April, consumer sentiment dropped to 57.7 from 63.5 while respondents believe that inflation will be at 4.5 percent in the next 12 months.
The Dow made its high of the week on Monday morning reaching 33,729 before grinding down to 33,300 by the end of the week. The S&P 500 was range bound for the entire week and would establish its weekly high and low on Wednesday. On that day, the S&P 500 would bottom out at 4,102 and peak at 4,142. It would finish the week at 4,124, which was roughly where it opened on Monday. Finally, the NASDAQ would begin the week at its lowest point at 12,190 before grinding to its high of 12,359 on Friday morning.
The major indexes were largely quiet this week in part because traders aren’t sure how recent data releases might impact the Fed’s interest rate decisions. The Federal Open Market Committee (FOMC) is scheduled to meet again in June, and there are expectations that interest rates will be allowed to remain where they are. Currently, the Fed funds rate is between 5.25 and 5.5 percent, and there is significant debate as to whether this is sufficient to bring down inflation.
Wall Street has spent most of the year hoping for an indication that the Fed is ready to pivot and start cutting interest rates. This is because higher interest rates make it harder for companies to borrow money, which can make it harder to access the capital businesses need to grow. Furthermore, higher interest rates tend to weigh on consumer spending, which can hinder earnings growth.
A fight over the debt ceiling may also have caused traders to be cautious with their money this week. Treasury Secretary Janet Yellen announced this week that a default could occur as soon as June 1 if there was no deal in place to increase the government’s capacity to borrow money. It’s believed that a default could trigger a significant recession that could result in millions of job losses. This may be true even if a default is seen as strategic and only lasts for a relatively short period of time.
Investors may get more clarity next week as manufacturing and retail sales reports are set to be released. Next Friday, Fed Chair Jerome Powell is expected to speak, which may provide more insight into what the Fed might do at next month’s meeting and beyond.