The Federal Reserve’s Preferred Measure of Inflation Rises I Daily Market Update

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Friday, May 28, 2021

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The Federal Reserve’s preferred measure of inflation rises

The month-over month reading for personal consumption expenditure (PCE) inflation in April rose to 0.6% while the core reading (excluding food and energy) rose to 0.7%.

  • The numbers were approximately in line with economists’ median expectation of 0.6% for both readings.
  • Year-over-year numbers jumped sharply due to the impact of rolling off April 2020’s sharp deflationary decline, with core PCE inflation now at 3.1%–its first foray above 3% since 1992.
  • The Federal Reserve (Fed) will continue to be tested on how much of the recent increase in inflation is “transitory,” but is patiently waiting for additional evidence.
  • Markets seem to have priced in changing inflation expectations and have become less responsive to new inflation data.

Daily Insights

U.S. markets open in the green amid inflation data this morning

Memorial Day Holiday

Ahead of the upcoming Memorial Day holiday, we wish to thank the brave men and women who fought for our freedom, some making the ultimate sacrifice. On this day and every day, thank you for your service to our great country.

Looking to close out May in the green

The S&P 500 Index is up 0.5% for the month, with one trading day to go in May.

  • Should stocks finish higher, this would mark eight of the past nine years that the S&P 500 was green for the month of May.
  • We noted the recent strength at the beginning of the month of May in the April 30 LPL Research blog, but we continue to think the summer months could eventually bring more volatility and a pause.

Day 100

Wednesday was the 100th trading day of the year and the S&P 500 finished up 11.7% for the best first 100 days since 2019 and 2013 before that.

  • Both of those prior years saw continued strength the rest of the year.
  • It does appear that a strong start to a year can mean stronger than average gains.
  • Since 1950, when the S&P 500 is up >10% on day 100, the rest of the year added another 8.6% on average and was higher 84.2% of the time.
  • Compare this with the average year after day 100 of up 5.2% and higher 70.4% of the time.

View enlarged chart.

Do You Have Your Mind Right?

LPL Financial Director of Research Marc Zabicki lists three practical steps for mitigating the potential havoc irrational influences can have on investment decisions in this week’s Street View video.

Technical update

U.S. equities are trading higher this morning, but the S&P 500 Index would need a 1% gain to eclipse the May 7 all-time high at 4238. Oil prices are also making a run at recent highs, a move above $68/bbl. would signal a breakout for West Texas Intermediate (WTI) crude oil.

Stock Market Gains Likely To Slow

LPL Research explores how, as this bull market gets a little older, the pace of stock market gains will likely slow but does not expect pullbacks to last very long. Learn more in this week’s Weekly Market Commentary, available on the Resource Center, Marketing on Demand, and Broadridge.

To Taper or Not to Taper: That Is the Question

On the LPL Market Signals podcast, Chief Market Strategist Ryan Detrick and Equity Strategist Jeff Buchbinder dig into why tapering is a normal part of the recovery process and why they think the inflation threat remains transitory.

 

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