Economic Data and Market Highlights
The past week’s trading was abbreviated in the US as the country celebrated Memorial Day but was not without significant economic data releases. On Thursday, US GDP came in slightly lower than expected and Friday year over year PCE rose 2.7% for April matching economist’s expectations. Core PCE rose 2.8%, which excludes food and energy, also in line with estimates. Month over month data however was slightly below estimates at 0.2% versus 0.3%. The rise was its smallest monthly gain so far this year. Meanwhile, inflation-adjusted spending dropped by 0.1%. Treasury yields saw their worst month of the year in response to the above-mentioned economic data with the 2-year Treasury closing out the month down 15 bps, the 10-year Treasury yield fell 17 bps and the 30-year Treasury yield fell 14 bps.
Minneapolis Fed President Neel Kashkari said this week that rates may remain unchanged until we get a clearer picture on inflation and warned a rate hike is not off the table. Ahead of Friday’s data investors were pricing in a one-in-five chance the Fed will hold rates steady through year end per CME Group.
As a result of the data Value stocks advanced for the week with the Russell 100 Value rising 20 basis points while the Russell 1000 Growth fell 1.18%. Energy (+2.04%), Real Estate (+1.82%), and Utilities (+1.69%) helped minimize the downside of the broader Russell 1000 (-0.57%) as tech names fell 1.45%.
Utilities are the third best preforming sector on a year to date basis up 15.82%, behind Tech and communication services sectors ( +17.31% and +20.88% respectively). One name, a Texas utilities company Vistra Corp. is outperforming Nvidia over the last year due to surging power demands fueled by data center requirements. Vistra currently operates a mix of nuclear and gas power plans which makes it a rare find in the utilities space. Utility companies are expected to benefit greatly from the coming AI boom with power demand set to double by 2030, according to Goldman Sachs estimates.
Inflation in Europe sped up in May as services prices continued to accelerate. This was mostly due to changes in public transport charges in Germany and inflation rose in countries like Spain, France, and Portugal. The inflation reading didn’t raise major alarms but one major issue from the ECB to cut rates in June is the strong labor market. Thursday data showed eurozone unemployment rate fell to 6.4% in April which is the lowest in the region’s history. Eurozone consumer prices rose 2.6% in the twelve months through May versus a 2.4% rise through April. Core inflation rose to 2.9% from a 2.7% in April. Services inflation rose to 4.1% from 3.7%. German bond yields, seen as the primary benchmark for regional borrowing costs, rose Friday to multi-month highs.
The upcoming week will have a significant amount of data released related to manufacturing and jobs data with the Jolts on Monday and non-farm payrolls on Friday.
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