Daily market snapshot

Published May 28, 2024
 Woman on couch looking at laptop

Tuesday, 5/28/2024 p.m.

  • Rise in yields weighs slightly on equities - After the U.S. holiday yesterday, major indexes opened slightly higher Tuesday but finished mostly lower, weighed by a rise in government bond yields. A pair of weak Treasury auctions and hawkish Fed commentary were the catalysts for the benchmark 10-year to rise back above 4.5%. Nonetheless, the tech-heavy Nasdaq was able to eke out a gain, helped by a rally in shares of NVIDIA, which added to its post-earnings advance. On the macroeconomic front, the spotlight remains on inflation and central-bank policy. Investors will be looking to Friday's inflation reading and Fed speakers for hints on the timing of rate cuts. Elsewhere, WTI oil rallied 3% today after rising 1% yesterday, driven by heightened geopolitical tensions in the Middle East. However, prices remain around $80 and in the middle of the past 12-month range*.
  • Innovation is alive and well, but diversification also matters - Enthusiasm around artificial intelligence, or AI, drove the Nasdaq to new record highs last week and has helped U.S. stocks more than reverse their April losses. Shares of NVIDIA, which is the AI industry leader now, jumped last week, as the company's results exceeded the high bar of expectations and showed that AI computing spending remains strong. We think that AI has the potential to boost productivity as it is applied across different sectors of the economy, but this is not going to happen overnight. At this stage, it is the enablers of this technology that reap the benefits, but over time the gains can spread to companies that can apply it effectively to improve existing processes. While the tech sector is leading sector performance so far this month, the gains are broader compared with last year, with 10 of the 11 sectors higher (the only sector lower is energy). International equity markets have also started catch up to the U.S., with major indexes in Europe, the U.K. and China keeping up with, and in some cases outperforming, the S&P 500, as the U.S. dollar has softened and global growth is improving.
  • Fed's preferred measure of inflation in focus this week - The economic and earnings calendar is light this week, with the core PCE inflation (personal consumption expenditures price index) being the highlight on Friday. Expectations are that the Fed's preferred measure of inflation will increase 0.2% month-over-month in April following a 0.3% increase in March, leaving the annual rate unchanged at 2.8%*. While progress in inflation stalled the first three months of the year, the downtrend remains in place, which suggests to us that the Fed will be able to deliver one or two rate cuts in the back half of the year. Some uncertainty around future Fed policy and November’s presidential election could be catalysts for volatility in the months ahead. But the combination of rising corporate profits, the continued economic expansion, and the potential for lower yields later in the year provides a positive backdrop for markets, in our view.

Angelo Kourkafas, CFA
Investment Strategist

*FactSet

 


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