U.S. stocks climbed last week, driven by strong semiconductor earnings, renewed interest in AI, and a softer inflation reading. Investors shrugged off ongoing trade concerns and leaned into riskier assets heading into month-end. Long-term Treasury yields fell below 4.5% as the Fed maintained a cautious tone.
Are We Getting Closer to Rate Cuts?
Markets continue to speculate about when the Federal Reserve might cut interest rates. Two data points fueled that conversation last week:
- Core PCE inflation, the Fed’s preferred measure, rose just 0.1% in April—its smallest monthly increase this year.
- Jobless claims ticked higher, signaling a gradually cooling labor market.
These developments suggest monetary policy may be working as intended, gradually slowing the economy without tipping it into recession. Still, Fed officials remain cautious and data-dependent, waiting for sustained signs of progress before making any moves.
Why Core PCE and Jobless Claims Matter
- Core PCE excludes food and energy prices to show underlying inflation. The year-over-year rate now sits at 2.5%, closer to the Fed’s 2% goal.
Jobless claims rose more than expected, which could ease wage pressures if the trend continues.
While these signals are encouraging, the Fed isn’t likely to move quickly. The central bank’s meeting minutes emphasized a patient stance, and officials remain watchful of inflation risks—especially given recent global trade developments.
Consumer Confidence Rebounds
The Conference Board Consumer Confidence Index jumped to 98.0 in May—well above expectations. The rebound came amid optimism around tariff negotiations and a stabilizing economic outlook.
Spending, Income, and Orders: Signs of Cooling
Several economic indicators pointed to a slowing but steady economy:
- Durable goods orders fell 6.3% in April, following a surge in March. Core orders (excluding transportation) rose slightly.
- Personal income grew 0.8%, beating forecasts.
- Personal spending rose 0.2%, matching expectations but slowing from the prior month.
Together, these reports paint a picture of moderation: consumers are still spending but at a slower pace.
Equity Markets: Tech and AI Lead the Way
Stocks bounced back from the previous week’s dip, with the S&P 500 gaining 1.9%:
- Semiconductor stocks surged on strong earnings.
- Retail, airlines, and banks also outperformed.
- Mega-cap tech benefited from continued AI enthusiasm.
Meanwhile, oil, metals, and China tech lagged. Enterprise software and hardware names saw some weakness tied to margin concerns.
Bond Market: Yields Ease on Fed Patience
Treasuries rallied last week:
- 10-year Treasury yield dipped below 4.5%
Investors favored bonds on soft inflation data and the Fed’s measured tone
The Fed’s latest meeting minutes reiterated a cautious, data-dependent approach—offering support to fixed-income markets even amid trade volatility.
What to Watch This Week
Monday, June 2
- ISM Manufacturing Index (May): Manufacturer sentiment expected to rise slightly
Wednesday, June 4
- ISM Services Index (May): Service sector confidence expected to improve
Thursday, June 5
- Trade Balance (April): Offers insight into tariff impacts and export trends
Friday, June 6
- Employment Report (May): Job creation expected to slow modestly; unemployment rate forecast to hold steady at 4.2%
The Bottom Line: Signs of Progress, but the Fed Is Still Watching
Cooling inflation and slowing job growth hint that rate cuts may be on the horizon—but the Fed wants more proof before pivoting. In the meantime, AI momentum and resilient earnings are keeping investors engaged.
As always, we recommend sticking to a diversified strategy and staying focused on your long-term financial goals.
Tom Hine is a CERTIFIED FINANCIAL PLANNER® professional and owner of Capital Wealth Management. With over 30 years of experience, Tom works with individuals and families on financial planning, retirement strategies, and investment management. He has a particular passion for special needs financial planning, shaped by his personal experience helping raise his sister Amy, who was born with a severe chromosomal condition. Tom understands the emotional and financial challenges that come with caring for a loved one with disabilities and helps clients navigate complex issues like preserving government benefit eligibility, coordinating Special Needs Trusts and ABLE accounts, and long-term care planning. With offices in Glastonbury and Wilton, CT, Tom serves clients across Connecticut and throughout the U.S. Schedule a complimentary introductory meeting with Tom.
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