The Nasdaq Composite (Nasdaq) was hit hardest out of the major large cap indexes, diving 1.5% last Friday. This sharp decline snapped a six-week winning streak as it notched a weekly decline of 0.1%. It remains well clear of the key 50-day moving average and still retains a gain for the year of 12.8%.
The S&P 500 was also walloped, falling 1.2% last Friday, though it clung on for a weekly lift of 0.1%. This was its fourth-highest close on record and it remains above its short-term and major moving averages. The benchmark index has now risen 8.2% this year.
The 10-year Treasury yield soared to 4.6%, this was a 24-basis point increase from the prior week, after April inflation data showed notable increases. The Consumer Price Index (CPI) reached its highest level since May 2023 and Producer Price Index (PPI) surged to its fastest pace since 2022.
Small business optimism for April remained near a one-year low amid war-driven inflation. Existing home sales rose from a nine-month low as we enter the key selling season.
First-quarter (Q1) earnings have risen 25% as 91% of companies have reported.
Oil prices also surged, with West Texas Intermediate futures rising 4.6% to $105.77, a sharp increase from the prior week.
The Senate narrowly confirmed Kevin Warsh as the Federal Reserve (Fed) Chairman, replacing Jerome Powell, who is staying as governor.
Notable economic data due in the week ahead include Wednesday’s release of the minutes from the Fed’s April meeting. There will also be a smattering of housing data while the University of Michigan’s revised Consumer Sentiment Index for May drops Friday.
Noteworthy earnings reports due in the week ahead include results from the likes of Home Depot (HD), Walmart (WMT) and, most importantly of all, AI chipmaker Nvidia (NVDA).
If you click on the Looking Ahead link below, you will find research by Wells Fargo. Below are excerpts from that analysis.
Week in review: May 11-15
Economic news
- CPI and PPI data for April indicate that inflationary pressures continue to rise amid soaring energy prices.
- CPI inflation rose by 0.6% month-over-month (M/M) and 3.8% year-over-year (Y/Y). This was primarily driving by food and energy prices, which accounted for 40% of the total monthly increase. Fuel prices have affected several industries, as consumers saw gasoline prices jump 28.4% Y/Y and airline fares rose 20.7% Y/Y. Meanwhile, core CPI came in at 0.4% M/M and 2.8% Y/Y.
- PPI inflation jumped 1.4% M/M, much more than expected, and rose significantly to 6.0% Y/Y. Price pressures have broadened beyond fuel, while the core PPI increased 1.0% M/M and 5.2% Y/Y, marking the biggest advance in more than three years.
- Retail sales for April matched expectations with a 0.5% increase M/M, despite being impacted by elevated energy prices.
- The National Federation of Independent Business small business optimism rose less-than-expected in April, coming in at 95.9.
- The quality of labor remains an ongoing problem for owners. Additionally, the net share reporting improved business conditions declined to 4%.
- Existing home sales increased by 0.2% to 4.02 million annualized in April, driven by strong contract closings in the Midwest and south.
- The housing market remains constrained with elevated mortgage rates and asking prices, while supply of homes for sale remains below pre-pandemic levels.
- Industrial production saw its largest increase in more than a year at 0.7% M/M.
- Despite Middle Eastern conflict and tariff-driven headwinds, industrial production grew, primarily driven by a 0.6% increase in manufacturing output.
Looking Ahead to this week: May 18 – 22
U.S.
- The highlight of the week will be S&P Global’s May manufacturing and service PMIs on Thursday. Other potentially market moving releases include the FOMC’s minutes from their April meeting on Wednesday and Friday’s finalized May consumer sentiment and inflation expectations survey from the University of Michigan.
- Also on tap: measures of economic activity from the regional Fed banks and a flurry of housing market data, including May homebuilder sentiment, and April‘s pending home sales, housing starts, and a preliminary reading of building permits.
Asia
- In China, the focus will be industrial production, retail sales, fixed asset investment, surveyed jobless rate, and measures of home prices, along with May’s one- and five-year loan prime rates.
- From Japan, look for preliminary third-quarter gross domestic product (GDP), May’s preliminary PMIs, April’s national CPI and trade balance, and March’s Tertiary (service) index, core machine orders, and finalized industrial production.
- Elsewhere in the region, South Korea’s May consumer confidence and April PPI, in addition to Australia’s April labor-market data, leading index, and May consumer confidence and preliminary PMIs.
Europe
- In Europe, the focus will be on preliminary May PMIs, along with the euroszone’s preliminary May consumer confidence, finalized April CPI, March trade balance, and first-quarter labor costs.
- From the U.K., watch for May’s consumer confidence, April’s CPI, a companion Retail Price Index, PPI, retail sales, and jobless claims along with March’s unemployment rate, weekly earnings, and the M/M employment change.
- Also to be on the lookout for France’s May manufacturing confidence and Germany’s May IFO business climate survey, April PPI, and finalized first-quarter GDP.
