Market Recap – Week Ending May 10

Stocks Higher Last Week; April CPI Report on Wednesday

Overview: Stocks were higher around the world last week, led in the U.S. by the S&P 500 index, which rose 1.9%. In a quiet week of data, investors were encouraged by a fifth consecutive quarter of positive growth for the index as S&P 500 earnings continue to exceed consensus expectations. According to Factset data, 92% of S&P 500 companies have reported as of the end of last week with nearly 80% of firms beating earnings forecasts. Eurozone stock markets also are showing strength with the benchmark STOXX 600 and FTSE 100 indices finishing last week 3.2% and 2.8% higher, respectively, both recording new all-time highs. In bonds, yields were relatively unchanged with the 2-Year and 10-Year U.S. Treasury notes ending the week at yields of 4.87% and 4.50%, respectively. This week, investors will look for insights into the Federal Reserve’s future monetary policy with April’s Consumer Price Index (CPI) report due out on Wednesday. Expectations are for core CPI (ex-food and energy) to come in at 3.6% on a year-over-year basis for April, down from the 3.8% reading for March. Investors also will monitor a key measure of consumer spending on the same day, the retail sales report, which is expected to show a 0.4% increase for April. On the economic front, the GDPNow data from the Atlanta Federal Reserve now is expecting a robust growth rate of 4.2% (as of May 8) for the second quarter, and the resilience of consumer spending will be key to continued positive growth (see next section).

Update on Consumer Spending (from JP Morgan): Despite weak income growth in early 2024, consumer spending remained resilient and real wages stayed positive. The personal saving rate, however, slid to 3.6% for the quarter and 3.2% in March, lower than for any year since 2007. This may seem concerning, but it's important to note the personal saving rate, calculated as the residual of disposable personal income less personal outlays, is inherently volatile. Looking at the personal saving rate from 1978 to today, consumers’ unwavering spending habits over the past few years have pushed the personal saving rate well below its long-term average of 8.5%. In 2020 and 2021, pandemic aid boosted personal savings, allowing consumers to spend cash accumulated from the government without drawing down on existing savings. While this tailwind persisted into 2022, it began to fade in 2023. Consumers had to adapt and began accumulating credit card debt, which now has risen above pre-pandemic levels. This suggests consumers might finally be ready to pause their spending. However, it is worth noting wage gains have outpaced inflation for over a year, and household wealth rose by 8% in 2023. Consumer sentiment remains positive. Despite a possibly overstated 12.7% month-over-month drop in early May, it's up 14.2% year-over-year, standing 17.4 index points above its low of 50 in June 2022. Consequently, the saving rate will likely stay low as consumers continue to find ways to keep the spending party going.

Sources: JP Morgan Asset Management, Goldman Sachs Asset Management, Barron’s, Bloomberg, Factset, CNBC.

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