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Mid-Week Market Review: Will the Fed Claim Victory by Crushing Consumer Demand?

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From The Economist: Is America’s economy heading for a consumer crunch?

Predictions made by bank bosses last summer suggested that households would be squeezed by inflation, but these have been confounded. Instead, consumer spending has powered American GDP to grow faster than that of other G7 nations. However, recent trends suggest a shift. Monthly consumer-spending growth dropped from 0.7% in March to just 0.2% in April, indicating a contraction in real terms. Retail sales have weakened, with brands from McDonald’s to 3M reporting that customers are tightening their wallets.

It seems Jerome Powell’s strategy to curb consumer demand is beginning to take effect. There are three main ways to reduce inflation, two of which reduce demand: the Fed can raise interest rates, the government can create an economic environment that increases unemployment, or Congress can deregulate to increase market competition. With Congress unable to effectively harness market forces to lower prices, the government has opted to reduce demand. With Fed funds rates above 5% and rising unemployment, it’s no surprise that consumers are feeling the pinch.

From CNBC: Job openings fell again in April, hitting their lowest level since February 2021, signaling a weakening labor market.

We believe this indicates that jobs are becoming scarcer, leading consumers to tighten their spending, just as the Fed intended. This highlights the often divergent nature of stock market performance and the broader health of the economy.

World News Highlights

From CNBC: Turkey’s inflation passes 75% in what economists believe is the peak.

From The Atlantic: The Failing State Next Door: Mexico has its first woman president.

However, we did find other news sources that noted Claudia Sheinbaum’s win is shrouded in controversy, with reports of up to 37 political opponents coincidentally dying before her victory.

Market News This Week

From Fox Business: NYSE technical trading glitch hits Berkshire Hathaway and others.

The New York Stock Exchange experienced a technical glitch affecting stocks like Barrick Gold and Berkshire Hathaway, which appeared to plummet nearly 100% before the issue was resolved around noon Eastern time.

From Market Watch: Roaring Kitty’s GameStop position is now worth over $386 million as of Monday morning.

From CNBC: The Fed’s preferred inflation measure rose 0.2% in April, as expected.

The personal consumption expenditures price index, excluding food and energy, increased by 0.2% in April and 2.8% over the past year. Headline P.C.E. rose 0.3% and 2.7%, respectively, aligning with estimates. Personal income rose by 0.3%, matching expectations, while spending increased by only 0.2%.

Found on Fraywire

Notable earnings calls today include Victoria’s Secret, Colgate, and Campbell Soup. Oracle has its earnings call coming up next week on Monday, Dicks Sporting Goods next Wednesday, and Adobe next Thursday.

The weekly Initial Jobless Claims report is due tomorrow, and the Fed’s next FOMC meeting is scheduled for next Wednesday.

Our chart of the day yesterday was the Steel & Iron Producer Price Index. The Index fell over 26% over the last 2 years, noting a sharp decline in steel prices. We coupled this chart with Total Construction Spending for Highways and Streets, which also fell more than 2% since December of last year.

Nvidia printed a new all time high yesterday, closing at $1,164.37. Nvidia’s market capitalization currently sits at 2.86 trillion dollars.

That’s all for this week. Don’t forget to subscribe to Market Insights and follow us on X, YouTube, Spotify, and Instagram @BreakingMetrics for real-time updates and in-depth analysis.