What We Are Watching This Week
- Producer Price Index
- Consumer Price Index
- US Leading Indicators
- Retail Sales
Highlights From Last Week
- Consumer Credit
- Comments from various Fed Presidents
- Consumer Sentiment
The S&P 500 Index approached its all-time high, marking its third consecutive week of gains, with value stocks outperforming growth stocks. Trading volumes were notably low, with Wednesday recording the year’s lowest value of shares traded. A light economic calendar contributed to the quiet trading week.The STOXX Europe 600 Index rose by 3.01% due to positive corporate earnings and optimism about potential interest rate cuts by major central banks. Major European indexes, including Germany’s DAX and the U.K.’s FTSE 100, also saw significant gains. In Canada, the market has increased by 1.7% over the past week, with the financial sector showing the most robust performance, rising by 2.9%.
According to the Federal Reserve’s report on Tuesday, consumer credit grew much slower in March. The annual growth rate of consumer credit was 1.5%, a decrease from the previous month’s rate of 3.6%. This equates to a $6.3 billion increase in March, compared to a $15 billion rise in the last month. Economists surveyed by the Wall Street Journal had anticipated a $14.8 billion increase for March. In the first quarter, consumer credit expanded at a 3.2% annual rate, up from the 2.4% rate in the last quarter of 2023. Key details include a modest 0.1% rise in credit card borrowing in March, following a 9.7% increase in the previous month, marking the slowest growth since April 2021. Nonrevolving loans, primarily student and auto loans, grew by 2%, up from a 1.4% increase in February. The significant decline in consumer borrowing is concerning, but more data is needed before drawing definitive conclusions about consumer health.1
U.S. wholesale inventories decreased by 0.4% in March, confirming that inventory investment negatively impacted economic growth in the first quarter, according to the Commerce Department’s Census Bureau. This followed a 0.2% rise in February. Economists had anticipated no revision in inventory levels. On a year-over-year basis, inventories fell by 2.3%. Private inventory investment reduced GDP growth by 0.35 percentage points in the first quarter, marking the second consecutive quarter of negative impact from inventories. The economy grew at a 1.6% annualized rate in Q1, the slowest in nearly two years. Wholesale motor vehicle inventories declined by 0.1%, with decreases also seen in stocks of metals, hardware, paper, medication, apparel, groceries, farm products, and alcohol. However, stocks of petroleum, lumber, furniture, machinery, and computer equipment increased. Excluding autos, wholesale inventories fell by 0.5% in March, a critical factor in GDP calculation. Sales at wholesalers dropped by 1.3% in March, following a 2.0% increase in February. At the current sales pace, it would take wholesalers 1.35 months to clear their shelves, slightly up from 1.34 months in February.2
On Thursday, The Department of Labor reported that for the week ending May 4, initial claims for seasonally adjusted unemployment benefits rose to 231,000, an increase of 22,000 from the revised figure of 209,000 from the previous week. The 4-week moving average increased by 4,750 to 215,000, with the last week’s average revised slightly to 210,250. For the week ending April 20, the total number of continued claims for benefits across all programs was 1,778,454, down by 59,066 from the previous week. In the comparable week of 2023, there were 1,715,365 continued claims.3
On Friday, Stats Canada reported that in April, Canada saw an increase of 90,000 jobs (+0.4%), keeping the unemployment rate steady at 6.1% and the employment rate at 61.4%. Gains were notable among core-aged men and women and male youth, while employment decreased for women aged 55 and older. Part-time employment rose significantly (+50,000; +1.4%). Increases were seen in sectors like professional, scientific, technical services, accommodation, and food services, with declines in utilities. Employment grew in Ontario, British Columbia, Quebec, and New Brunswick. Total hours worked increased by 0.8%, and average hourly wages rose by 4.7% year-over-year. Recent data may lead the Bank of Canada to reconsider the timing of rate cuts from their 23-year high of 5%. Money markets have reduced the probability of a June rate cut from 54% to 48% and now expect a cut in September instead of July. 4
In May, the University of Michigan’s consumer sentiment index dropped to 67.4, the lowest in six months, from 77.2 in April, below the expected 76. Inflation expectations for the next year increased to 3.5% from 3.2%, and for the next five years to 3.1% from 3%. The index measuring current economic conditions fell to 68.8 from 79, while future expectations declined to 66.5 from 76. Consumers are concerned about rising inflation, unemployment, and interest rates, reflecting recent economic challenges.5
Investors generally do not anticipate the Federal Reserve (Fed) to raise interest rates further, and Fed officials have indicated that further hikes are unlikely but not impossible. After holding rates steady at 5.3% last week, Fed Chair Jerome H. Powell suggested that while additional rate hikes are improbable, they are not entirely ruled out, depending on future economic data. Several Fed governors delivered speeches last week, discussing their perspectives on the current economic conditions and outlining the criteria for potential rate hikes or decreases in the coming months.
Neel Kashkari, President of the Federal Reserve Bank of Minneapolis, and Michelle Bowman, a Fed governor, have expressed openness to potential rate increases if inflation remains stubborn. Thomas Barkin, President of the Federal Reserve Bank of Richmond, emphasized that the impact of current rates on the economy will be more evident with time.
The Fed expects the current rate levels to slow the economy, reducing inflation. Despite recent stalls, the Fed plans to maintain current rates to gradually control inflation, with a cautious approach to avoid triggering a recession.
If inflation decreases significantly, the Fed might cut rates, while a resurgence in inflation could prompt rate hikes. Economists anticipate inflation to slow, with the Consumer Price Index (CPI) expected to drop to 3.4% in April and potentially to 2.9% by year-end. The Personal Consumption Expenditures (PCE) index is forecasted to fall to 2.5%.
This expectation of cooling inflation has led investors to foresee potential rate cuts rather than hikes, though geopolitical risks or a heated economy could change this outlook. Fed officials have indicated they are prepared to adjust rates as needed to achieve their inflation goals.
In summary, while the prevailing expectation is for stable or reduced rates due to anticipated lower inflation, the possibility of rate hikes remains if inflation trends upward unexpectedly.6
| WK | Year to Date | |
| Dow | 2.16% | 4.84% |
| S&P500 | 1.85% | 9.49% |
| Nasdaq | 1.14% | 8.86% |
| S&P400 Mid-cap | 2.22% | 7.64% |
| Russell | 1.18% | 1.61% |
| TSX | 1.70% | 6.50% |
| Oil | 0.30% | 9.40% |
- https://www.federalreserve.gov/releases/g19/current/ and https://www.newyorkfed.org/microeconomics/hhdc.html
- https://www.census.gov/wholesale/pdf/mwts/currentwhl.pdf
- https://www.dol.gov/ui/data.pdf
- https://www150.statcan.gc.ca/n1/daily-quotidien/240510/dq240510a-eng.htm
- https://data.sca.isr.umich.edu/
- https://www.federalreserve.gov/newsevents.html
Important Information:
Warren Gerow is an independent investment wealth consultant to Sightline Wealth Management.
Sightline Wealth Management LP (“Sightline”) is an investment dealer and is a member of the Canadian Industry Regulation Organization (CIRO) and the Canadian Investor Protection Fund (CIPF). Sightline provides management and investment advisory services to high-net-worth individuals and institutional investors.
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