Economic Data and Market Highlights
AI related stocks lifted the Nasdaq and S&P 500 to new highs this week. This came on the heels of the Federal Reserve’s decision to keep rates unchanged and indicated they are in no hurry to reduce rates despite easing inflation data. Fed officials have penciled in one rate cut for 2024 as the consumer price index was flat from the month prior and is up 3.3% year-over-year. Along with a softer than expected CPI report of 3.3% for the month of May, US imported goods fell in May by their largest amount since the end of 2023, furthering the argument that inflation is showing signs of slowing. The import price index fell by 0.4% last month with lower gasoline prices being a major contributor to the decline. Despite their large contribution to the decline, import prices would still have falling by 0.3% excluding energy. Over the last 12 months, imports have risen by 1.1%.
The S&P 500 was helped by Broadcom, which have more than tripled in price over the past two years due to sales tied to the development of artificial intelligence. On Wednesday the company said its sales for the fiscal quarter ending May 5th was up 43% higher than a year earlier beating the streets expectations. Major indices in Europe extended losses following last week’s Europeans Parliament elections and worries around mounting deficits in France. French assets have been under pressure as the country may see a snap election at the end of the month. The National rally performed strongly last weekend which prompted French President Emmanuel Macron to call snap elections which led to uncertainties around the countries near-term political and economic expectation. The weeklong downturn led to the French finance minister to warn the country that it will plunge into a debt crisis like the one seen 2 years ago in the UK if the National Rally wins. The France CAC-40 fell to its lowest levels since late January with bank stocks falling between 3% and 5%. French credit default swaps rose on those said French banks. BNP Paribas’ five-year CDS rose to 49 basis points while Société Générale’s five-year CDS rose to 58 basis points. The yield between the 10-year French government bond versus the 10-year German Bund widened to multi-year highs of 77 basis points. This signals risks around French bonds versus other bonds in the region.
With Americans dining out more, restaurants are starting to appear as a hot place to be in real estate. Food services accounted for 19% of retail leases last year rising to the highest portion for any category per CoStar Group which began tracking such data in 2007. Rising wages, low unemployment, and millennials having children later in life are what is contribution to the uptick per analysts as single households are less likely to grocery shop than families. During the pandemic many shops closed but four years later increased restaurant leasing has helped the retail-real-estate sector see its strongest position in years.
The average household spent roughly 53% of its food spending on food spent dining out last year per the US Agriculture department’s economic research. They are on pace to top $1.1 trillion this year which would be a 5.4% increase from 2023’s record number per the National Restaurant Association. Chipotle has capitalized on this trend, opening 271 new restaurants last year, which is the highest annual amount in the company’s history. They plan to open about 300 more this year. More of the new locations have a drive-through option where you can order ahead and pick up at the window. Digital orders have moderated since the pandemic but still make up 37% of total sales.
Despite the increased restaurant spending, consumer sentiment took a hit in May, declining from 69.1 in May to 65.6 in June, well below Dow Jones estimates of 71.5. Consumer sentiment hit a low back in June 2022 amidst growing inflation worries and has since recovered. Consumers expect that prices will increase by 3.1% over the next 5 years and expect costs to rise 3.3% over the next year. This decline in sentiment is consistent with last month’s unemployment data which showed the US unemployment rate climbing to 4% last month, the highest in over two years.
The Past Week’s notable US data points
Data Source: Blackrock, Bloomberg, Charles Schwab, CNBC, Goldman Sachs, J.P. Morgan, Morningstar, Morgan Stanley, Standard & Poor’s, and the Wall Street Journal.
Authors:
Jon Chesshire, Managing Director, Head of Research
Michael McNamara, Analyst
Sam Morris, Analyst