Weekly Market Recap: Record Highs in U.S. Equities, Easing Inflation Signals, and Upcoming Economic Data

Market Overview

U.S. equities had another solid week, with the S&P 500, Nasdaq, and Dow Industrials all reaching fresh record highs. The Dow hit 40,000 intraday for the first time on Thursday. The S&P 500 climbed approximately 1.5% for the week, marking its fourth consecutive weekly gain. Small caps outperformed slightly, benefiting from rising markets and lower interest rates. Within the technology sector, semiconductors, especially NVIDIA and Apple, drove strong performance, leading the Russell 1000 Growth Index to outperform its Value counterpart. However, the value style index faced pressure from the underperforming energy sector. Real estate stocks also saw gains due to lower interest rates, while consumer discretionary and industrials lagged.

International equities experienced broad gains, particularly in emerging markets led by China, which saw a 3% rise in the MSCI China Index. China's markets were buoyed by a stimulus program for its property market and positive earnings from major companies like JD, Tencent, and Alibaba. Japan’s Nikkei also performed well, slightly outpacing Europe, which benefited from a weaker U.S. dollar. Central banks remained in focus, with the ECB potentially cutting rates next month and Japan ready to support the yen.

In fixed income, the Bloomberg Aggregate Bond Index rose following a favorable April inflation report, which hinted at possible rate cuts later this year. However, less dovish remarks from several Fed presidents tempered this optimism. Commodities also had a strong week, with copper prices hitting a record high due to high demand and supply discrepancies. Meanwhile, cocoa prices plummeted, marking a significant decline from their April peak.

Federal Reserve Insights and Economic Roundup

The April inflation report showed both headline and core consumer prices rising by 0.3% month-over-month, slower than in previous months, hinting at easing services inflation. However, retail sales fell by 0.3% in April, indicating a potential slowdown in consumer spending. Import prices rose faster than expected in April, driven by industrial supplies, but auto-related prices remained stable.

Housing starts rebounded but were still below pre-pandemic levels, supported by years of undersupply and limited market inventory. Investors should monitor these indicators for shifts in market trajectory.

The bond market reacted positively to the April inflation data, with expectations for rate cuts by September. Nonetheless, the Fed indicated that further easing would depend on ongoing inflation data.

The Week Ahead

Key economic data scheduled for the coming week includes:

Tuesday: Philadelphia Fed Non-Manufacturing Index (May)

Wednesday: MBA Mortgage Applications (May 17), Existing Home Sales (Apr), FOMC Minutes (May 1)

Thursday: Chicago Fed National Activity Index (Apr), Initial Jobless Claims (May 18), Manufacturing PMI (May), Services PMI (May), New Home Sales (Apr), KC Fed Manufacturing Activity (May)

Friday: Durable Goods Orders (Apr), University of Michigan Sentiment (May), KC Fed Services Activity (May)

Investors will closely watch these releases, especially the FOMC minutes, for further insights into the Fed's policy direction.