by Professor Jeremy J. Siegel, Senior Economist to WisdomTree and Emeritus Professor of Finance at The Wharton School of the University of Pennsylvania
Last week brought a mixture of economic reports that provided reassurance following the prior week's economic disappointments. Encouraging claims data and strong durable goods reports in April eased some of my nervousness from the prior week’s disappointing housing starts and new home sales figures. Gross domestic product (GDP) for this quarter is now projected to be in the low three’s, which is above the Federal Reserve’s (the Fed’s) and most economists’ year-end target.
NVIDIA's earnings seemed to monopolize the market's attention, overshadowing other stocks following another strong report. This report caps off another strong earnings season, especially in light of the light GDP growth in Q1.
In terms of monetary policy, the recent Federal Open Market Committee (FOMC) minutes indicated that some members discussed the potential to raise rates, which understandably caused market jitters. However, that discussion should not have surprised close listeners to Powell’s remarks. Powell discussed his stance as not believing raising rates was appropriate, even if he did not deny that a discussion occurred. My view remains that rate cuts should still occur by the end of this year—with inflation data that should be coming down.
A positive development is the noticeable decrease in commodity prices, such as oil, which is down about 10% from its high. This drop should eventually reflect in broader economic indicators and help moderate future inflation readings. Also, our analysis of the New Tenant Rent Index developed by the Bureau of Labor Statistics (BLS) confirms our own index and indicates that there were no significant rental increases over last year. As we have noted, this is contrary to the official BLS reports that are used in the Consumer Price Index (CPI) measure. This discrepancy should correct over time and could lead to rate cuts sooner rather than later.
Looking ahead, it is a light week for data until we get to the official employment reports next week. In summary, last week brought some stability back to the economic data and a comforting tempering of commodity prices that continues grounds for cautious optimism. The bull market is still intact.
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