Hawkish Fed, Dovish Inflation

Hawkish Fed, Dovish Inflation

Last week’s abbreviated trading week saw retraction throughout markets due to hawkish Fed rate cut expectations meeting a somewhat dovish PCE inflation print. With broad equities, alts, and fixed income selling off, small cap stocks and high yield saw opportunities to outperform. The takeaway from last week is that a single good inflation number is not enough to move the Fed’s policy needle. Several prints showing progress on inflation will likely be needed to see a shift in policy. As it stands, markets still expect one or two rate cuts this year.

Weekly Performance

Data Source: Factset®        Performance Period:      5/27/2024    5/31/2024

In economic data, the PCE prints were the star of the show, as they are the Fed’s preferred metric for monitoring inflation. PCE1 came in at 0.2%, down from 0.7% in March and a welcome reprieve. Personal Income1 came in aligned with expectations at 0.3% and down from 0.5% in March. This aligns with the stronger consumer confidence print on Tuesday at 102, beating expectations and up from 97.5 in April. Conversely, last week saw Pending Home Sales2 nosedive with a -7.7% decrease – a far jump from the growth of 3.6% seen in March. As we look across the prints, we see a continuing narrative of a consumer stressed by high inflation with income not keeping pace.

In geopolitical drivers, OPEC+ announced they will continue current production cuts through next year, indicating prices for oil may stay elevated through the November election. With the resolution, the group also appears to have stepped away from its stated target of a $100 barrel of oil. That said, we believe the $5/gallon gas prices of June 2022 are unlikely to be repeated this year. Outside of energy, Artificial Intelligence (AI) received good news with NVDA announcing its next AI chip architecture ahead of the COMPUTEX conference. This announcement keeps NVDA on its annual cadence of AI chip architecture updates. The news continues a tech giant arms race for AI tech, as each generation could see a change in the industry leader.

As the race tightens to cement AI dominance and oil cartels set their sights closer to mountains than moons, there is prudence in a “read…breath…then react” decision-making process. There will be plenty of opportunities and rumors of opportunities, but everything has a cost. Counting that cost, especially when there are long-term financial ramifications, is imperative. When it comes to counting the cost of stewardship and discipleship, there is no need to look further than the counsel in Luke 14:31. “(W)hat king, when he sets out to meet another king in battle, will not first sit down and take counsel whether he is strong enough with 10,000 men to encounter one coming against him with 20,000?” Before you react, seek counsel and count the cost.

  1. Seasonally Adjusted, month over month
  2. Month over Month

Sources: Yahoo Finance,, and JP Morgan Market Insights

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