Weekly Investment Perspective

U.S. stocks continued their upward trajectory from the previous week supported by a cooler than expected consumer inflation report and sustained corporate earnings momentum. The Dow Jones Industrial Average (DJIA) surpassed the 40,000 level for the first time following last week’s 1.4% gain. The S&P 500 also drifted higher for the fourth consecutive week, adding 1.9% and closing within 1% of its record high. Meanwhile, the Nasdaq Composite advanced 2.4% for the week.

The S&P 500 made its 23rd record high in 2024 as data showed the consumer price index cooled for the first time in six months. The consumer-price index, a gauge for goods and service costs across the U.S. economy, rose 3.4% in April from a year ago, the Labor Department reported. Core prices that exclude volatile food and energy items climbed 3.6% annually, the lowest increase since April 2021. The latest inflation report may offer US policymakers hope that inflation is resuming its downward trend, which would help pave the way for rate cuts. Separate retail sales data indicated some softening of the resilient consumer demand that’s been bolstering the economy. Recent earnings reports from large retailers including Home Depot, Walmart, and Target have also flagged waning consumer demand for discretionary goods.

April PPI came in hotter than forecast on both headline and core measures, with higher inflation for both services and goods. The Producer Price Index rose 0.5% in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported, higher than the 0.3% estimate. On an unadjusted basis, PPI moved up 2.2% for the 12 months ended in April, the largest increase since rising 2.3% for the 12 months ended April 2023. Nearly 70% of the April advance in wholesale prices is attributable to a 0.6% increase in the index for services. Prices for goods moved up 0.4%. Three-quarters of the April advance in the index for goods can be traced to a 5.4% increase in gasoline prices.

With the lion’s share of S&P 500 companies having reported first-quarter results, the profit picture continues to brighten. Incoming quarterly announcements have largely beaten expectations, while management commentary and outlooks have been rather upbeat, supporting recent upward revisions to estimates for 2024 profit growth. However, one of the most widely anticipated earnings results will happen this week as AI-chipmaker Nvidia (NVDA) is set to report on Wednesday after market close. Nvidia’s results will give insight into the AI infrastructure investment boom that has been a significant boon to tech stocks and the U.S. equity market as a whole.

Looking ahead, investors remain cautiously optimistic, balancing concerns about inflation and interest rates with hopes for continued economic strength. Additionally, developments on the inflation front, progress in geopolitical situations, and any shifts in monetary policy guidance from the Federal Reserve will likely influence market dynamics in the coming weeks.