Stocks and bonds experienced another positive week, with the S&P 500 index reaching a new all-time high. The S&P 500 saw a 1.6% increase, propelling it to record levels. Notably, the Magnificent 7, including Microsoft, Meta Platforms, Amazon.com, Apple, NVIDIA, Alphabet, and Tesla, outperformed the market, showing an 11.3% increase since mid-April.
The U.S. Treasury yields for the 10-year and 2-year bonds decreased to 4.4% and 4.8%, respectively. Despite the Bloomberg U.S. Aggregate Bond index still showing a negative return year-to-date, it has appreciated by 1.8% since mid-April. Small-capitalization stocks, which are more sensitive to economic changes, have been performing well, surpassing the S&P 500 with a 7.7% return.
The U.S. economic growth outlook remains positive, alleviating concerns about inflation while keeping corporate earnings estimates intact. Consensus 2025 earnings for the S&P 500 continue to show an upward trend, leading to relatively lower stock valuations despite the recent rally.
Inflation worries have eased slightly, with the April Consumer Price Index (CPI) showing a decline in the year-over-year pace to 3.4%. The supercore measure of services inflation, excluding rent inflation, increased to 4.9% year-over-year, indicating ongoing inflation challenges.
Market reactions to the inflation data and softer economic growth expectations have increased the likelihood of a Federal Reserve rate cut in September. Markets are now pricing in an 82% chance of a rate cut, with expectations of two 25 basis points cuts in 2024.
The recent market rally, particularly in economically sensitive sectors, suggests optimism for a soft economic landing supported by potential Fed monetary easing. However, the increased market expectations also raise the risk of market volatility in case of disappointments.
This week's economic calendar is relatively quiet, with a focus on earnings reports from significant retailers. Observing consumer trends, especially in lower-income segments, will be crucial in assessing the economic landscape moving forward.
Disclosure: Glenview Trust holds investments in various companies mentioned in this article within its recommended strategies.
