NVIDIA has gained almost +170% year-to-date and recently surpassed Apple as the second biggest S&P 500 holding. Due to its high index weight and strong return, Nvidia has contributed 33% of the S&P 500 Index’s year-to-date return

This week, the Bureau of Labor Statistics released May’s employment data, which showed 272,000 jobs were added to the economy, exceeding the expected increase of 190,000 and the revised prior-month tally of 165,000. Conversely, the unemployment rate ticked up to 4.0%, versus economists’ outlook of 3.9% and the April level, which was also 3.9%

The S&P 500 set a new all-time high in May after trading lower in April. The technology-heavy Nasdaq 100 Index gained +6.2% and set a new all-time high. What caused stocks and bonds to rebound after the April sell-off? The answer: Labor market and inflation data.

This week's data suggests that the Fed may be more hesitant to reduce interest rates over the near term due to robust manufacturing sales forecasts. If the US economy continues to expand without accelerating wage growth and inflation, stocks likely will gain further ground, though incrementally. The Federal Reserve's rate cuts would provide support, and we expect rates to be lower by the end of the year.

This week, stock market indexes cemented a full recovery from April’s pullback, reaching respective records. Fed Chairman Jerome Powell’s comments that short-term interest rates, currently in the range of 5.25%-5.50%, were more likely to fall than rise in the second half of this year most visibly supported share prices. A cooler inflation report, by way of the Consumer Price Index, for April backed this rate policy likelihood. 

Ten months have passed since the Federal Reserve last raised interest rates. The pause in rate hikes follows a 17-month period where the central bank raised interest rates by +5.00%. In this month’s charts, we explore what is preventing the Federal Reserve from cutting interest rates.

This week, stock valuations began to recover after a negative April performance. Corporate earnings reported for the first quarter of 2024 have been healthy. The earnings season is winding down, and results have generally been better than investors on Wall Street had anticipated. Notably, many management teams appear more optimistic about business trends for the remainder of 2024 and into 2025.

The S&P 500, despite trading lower in April, has gained +5.9% this year. The sharp rise in Treasury yields is one of the biggest stories this year. At the start of 2024, investors expected the Federal Reserve to start cutting interest rates in March. The U.S. economy’s resilience to higher rates is another reason the Fed is not rushing to cut rates.

This week’s initial estimates of 1Q24 GDP revealed a complex picture. At the start of the year, expectations were set for gradual declines in growth and inflation. However, the data showed a sharp deceleration in headline growth while inflation, as measured by the personal consumption expenditures price index (PCE), accelerated on a quarter-to-quarter basis. This has raised concerns about potential stagflation and its implications on interest rates and markets.

In recent weeks, uncertainty surrounding the macroeconomy and geopolitics has weighed down share prices, most visibly those of banks, semiconductors, and software companies, particularly small-cap stocks. Overall, price volatility has increased. In such an environment, investors would do well to stay with leading companies with proven earnings and cash-flow track records.

The Institute of Supply Management (ISM) conducts a monthly survey that focuses on the manufacturing industry. The survey shows the New Orders index climbed above the key 50 threshold in January 2024, the first time in 16 months. The rise above 50 indicates that manufacturing activity may be starting to expand again, but it also provides insight into corporate earnings.

This week, the BLS reported that the Consumer Price Index (CPI) gained 0.4% on a monthly basis, which was stronger than what investors had anticipated and on par with the prior read. Investors are concerned that with inflation proving resilient, the Fed might decide to implement fewer rate cuts than hoped for and later this year than expected. The consensus on Wall Street is that the Fed may only reduce interest rates in one or two increments in the year's second half.