Easing Inflation Report Propels Stocks and Bonds for the Week

Easing Inflation Report Propels Stocks and Bonds for the Week

With the latest inflation report showing continued signs of easing, both stock and bond markets ended the week in positive territory. Global equities (represented by the MSCI All Country World Index) were up 0.4%, and domestic stocks (represented by the S&P 500 Index) were up 1.6%.

10-Year Treasury Yield

Easing inflation gave the market higher confidence that rate cuts were still possible in 2024. As such, the 10-year treasury yield dropped to 4.2% by the end of the week after rising above 4.6% earlier this year. For the week, U.S. investment-grade bonds (measured by the Bloomberg US Aggregate Index) were up 1.3% and are in positive territory for the year.

Consumer Price Index Report

The monthly Consumer Price Index report (one measure of inflation) showed that May had no increase in prices over April and that May 2024 was 3.3% higher than May 2023 (referred to as year-over-year). Expectations were for a 3.4% rise, so the report was met with optimism in public markets.

What’s interesting about the inflation dynamic is that consumer survey reports released recently show that consumers are still quite concerned about price increases. The reports showed an overall drop in sentiment, with inflation expectations increasing.

The Fed and Interest Rates

As expected, the Fed kept interest rates at their 5.25%-5.50% range last week. While markets were pricing in several cuts for 2024 at the beginning of the year, market-weighted probabilities show that 1, maybe 2, is the most likely scenario this year.

I’d like to leave you with the final line we’ve used since we started these commentaries back at the very height of market volatility in March 2020. Always remember that we create financial/investment plans not for the easy times, but to prepare for the tough ones.