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Wednesday, June 5, 2024 | Back issues
Courthouse News Service Courthouse News Service

Dow hits key benchmark, as disinflation continues

Wall Street’s recent win streak extended for one more week, as the Dow Jones Industrial Average broke through the 40,000-point ceiling.

MANHATTAN (CN) — Investors cleared a major hurdle this week, with one of the three major U.S. indices setting a new important record, as inflation and consumer spending point to interest rate cuts in the fall.

“Breaking the 40,000 barrier is a big psychological boost for the bulls as the round numbers hold special significance in people’s hearts and minds,” Chris Zaccarelli, chief investment officer at the Independent Advisor Alliance, said on Thursday.

By the closing bell on Friday, the Dow Jones Industrial — which cracked the 40,000-point mark at one point on Thursday — finished the week up 492 points to settle at 40,004 points. The S&P 500 and Nasdaq had less notable outings but still notched weekly wins of 81 points and 340 points, respectively.

Experts fear the good times may soon end, though. “No one knows how overvalued a market may become except in hindsight, but markets are now headed into overvalued territory,” Zaccarelli said.

The latest economic data show inflation is still a problem but increasingly becoming less of a major one, while consumer spending is now starting to cool pointedly.

On Wednesday the Bureau of Labor Statistics’ consumer price index showed inflation eased more than anticipated in April, with prices rising just 0.3% compared with the 0.4% expectation. The previous CPI for March also was revised down further by 0.1%.

Core inflation for goods, which doesn’t take into account food or energy prices, fell by 0.1%, which is more good news for investors. Food prices went unchanged for the month, while energy prices gained 1.1%, mostly due to spikes in gasoline prices.

“The CPI report is consistent with a ‘two steps forward, one step back progression,’” said Bill Adams, chief economist at Comerica. “Growth will likely stay in a lower gear in the rest of 2024."

The same day, retail sales also came in, showing weaker than expected numbers. The overall monthly sales for April were essentially 0%, a far cry from the 0.6% consensus forecast. Core retail sales, which don’t take into account volatile sectors like gas stations or auto dealers, fell by 0.3% last month.

Car sales fell slightly, as did sales of building materials and garden supplies, at restaurants and bars, and for hobby and book stores. Most of the other sectors saw minor gains, with online store sales falling.

Adams called the retail sales report “likely signal and not noise,” adding that smaller tax refunds and downward revisions to the prior retail sales reports indicate the beginning of a trend.

The other inflationary report for the week did not jive with the CPI, however. On Wednesday, the agency’s producer price index showed a larger than expected increase in month-over-month prices, though the 0.5% gain in April was attributed mostly to the downward revision from March. The 5.4% increase in gasoline prices also didn’t help matters.

However, experts say the PPI should help support the case for the Fed cutting interest rates later this year. Paul Ashworth, chief North America economist, said in an investor’s note that “April’s news was mixed, but, on average, encouraging,” adding that “this is a good report as far as the prospective gain in supercore services is concerned.”

Some aspects of the index showed a decline, such as food prices falling 0.7%, warehousing dropping 0.6%, and airfare declining 3.8%. Coupled with the CPI, Ashworth and others expect the Federal Reserve to slash interest rates in September.

Indications this week by Federal Reserve chair Jerome Powell were that the central bank is still not anxious to begin cutting rates but that it will wait for at least one more round of good inflation data.

“We did not expect this to be a smooth road,” Powell said at the Foreign Bankers’ Association annual meeting in Amsterdam. “What that has told us is that we’ll need to be patient and let restrictive policy do its work.”

Follow @NickRummell
Categories / Economy

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