Be careful what you wish for. Financial markets have been hoping to see signs of a slowing U.S. economy that would let the Federal Reserve begin to cut interest rates. But after the Institute for Supply Management’s (ISM) manufacturing gauge fell 0.5 point to 48.7 in May, the weakest in three months, in data released on Monday, investors have begun to worry if this much of a slowdown is a good thing.
The Federal Reserve’s preferred measure of U.S. inflation–the core personal consumption expenditures (PCE) price index, which strips out volatile food and energy prices–rose 0.2% in April from March.That was the smallest advance in 2024, according to Bureau of Economic Analysis data out Friday. And there was more evidence of a slowing economy today.
Friday brings more inflation data— price indexes for April personal income and spending, including the Personal Consumption Expenditures index, the Federal Reserve’s preferred inflation measure. The PCE ran at an annual 2.7% in March and has exceeded the Fed’s 2% inflation target since March 2021.
Hedge funds’ exposure to the Magnificent Seven of Nvidia (NVDA), Apple (AAPL), Amazon (AMZN), Meta Platforms (META), Alphabet (GOOG), Tesla (TSLA), and Microsoft (MSFT) has reached a record high of approximately 20.7% of their total net exposure to individual U.S. stocks, according to a report from Goldman Sachs. The proximate cause of this surge is Nvidia’s recent consensus-beating earnings report, which renewed the frenzy around artificial intelligence stocks. Nvidia has added around $470 billion in market capitalization since that report. A slightly more long-term cause is that with the consensus projection for when the Federal Reserve will start cutting interest rates moving later and later in 2024, earnings growth is increasingly the only game in town when it comes to supporting higher stock prices.
Yesterday, May 22, after the market close, Nvidia (NVDA) crushed Wall Street projections for revenue and earnings for the company’s fiscal first quarter of 2025. Nvidia reported that revenue soared 262% year-over-year to a record $26 billion, marking an 18% quarter-over-quarter increase. Adjusted earnings per share climbed 461% to $6.12. The Wall Street consensus had called for revenue of $24.65 billion and earnings per share of $5.59. And it even beat the Wall Street “whisper number,” which in a bullish momentum situation like this runs considerably above the official consensus. Data center revenue hit a record $22.6 billion, up 427% year over year. Data center revenue represents 87% of Nvidia’s total sales. For the current fiscal second quarter of 2025 Nvidia told investors to expect sales of $28 billion, up 107% year over year.
I’m expecting a key moment for momentum in a market that keeps setting new records on Wednesday, May 22, when Nvidia (NVDA) announces revenue and earnings for the company’s first fiscal quarter of 2025 and the quarter that ended in calendar April 2024. The consensus among Wall Street analysts is looking for the company to earn $5.17 a share. That would be a huge leap from 88 cents a share in the April 2023 quarter. The projections for revenue are every bit as optimistic.
Today, May 15, the April Consumer Price Index report dangled new hope in front of investors. The all-items index annual rate of inflation dropped to an annual 3.4% rate from 3.5% in March. The core index, which leaves out food and energy prices, fell to an annual rate of 3.6%, down from 3.8% in March. Those annual rates are still way above the Federal Reserve’s inflation target of 2%. But after three straight reports where the inflation rate came in above market expectations todays report, which hit projections right on the mark, came as good news. In recent weeks Wall Street has speculated that inflation is set to resume its downward course starting with the April report. And after stalling above 3.5%, annual inflation would resume its downward path.
Granted that the remarks weren’t delivered at the most high profile venue–a panel discussion at the Foreign Bankers Association meeting in Amsterdam–but I read Federal Reserve chairmen Jerome Powell as saying that the U.S.central bank might hold interest rates steady for longer than now expected by WallStreet. Ahead of new inflation data from the Consumer Price Index for April due tomorrow, anyway. On the day before the meeting economists were expecting the annual inflation rate at both the all-time and core levels to have dropped by 10 or 20 basis in April
According to the University of Michigan survey, U.S. consumer sentiment declined in early May to a six-month low as short-term inflation expectations and concerns about the job market picked up. The sentiment index slid to 67.4 in May from 77.2, according to the preliminary reading. The figure was weaker than all forecasts in a Bloomberg survey of economists. Consumers expect prices will climb at an annual rate of 3.5% over the next year, the highest in six months and up from the 3.2% expected in April.
Social Security and Medicare will run out of money in just over a decade, a new government report warned Monday, May 6. Where’s the good news? Insolvency will come late than forecast last year thanks to the hot job market. The trustees for the massive retirement programs project that Social Security will be insolvent by 2035, and Medicare by 2036, which would force benefit cuts. Congress and the White House could act in 2025 as part of an intense debate on the extension of the Trump tax cuts of 2017, which are due to expire in 2027.
On Wednesday, May 1, the Federal Reserve decided NOT to cut interest rates at its May 1 meeting. That was the decision expected by the financial markets. And Federal Reserve chair Jerome Powell tried his best to keep traders from speculating that the Fed would actually raise interest rates, rather than cut them, in the remainder of 2024.
The employment cost index (ECI), which measures wages and benefits, increased 1.2%, the most in a year, after rising 0.9% at the end of 2023, according to a report from Bureau of Labor Statistics on Tuesday, April 30. The increase was greater than projected by any economist in Bloomberg’s survey of economists.Compared with a year earlier, the ECI, the Fed’s preferred measure of employment costs, climbed 4.2% after a similar annual increase in the fourth quarter.
