The Fed's favored inflation gauge highlights shortened trading week: What to know this week
Will Fed's Inflation Gauge Trigger Rate Cuts?
Stock markets showed mixed results as the debate on potential Federal Reserve rate cuts continued. Key economic data releases are expected in the coming week, including the Fed's preferred inflation gauge, the Personal Consumption Expenditures (PCE) index, and an updated U.S. economic growth report for the first quarter. Corporate earnings are winding down, with major companies like Salesforce and Costco reporting. The week also includes a market closure on Memorial Day.
How has Nvidia's recent earnings report impacted the overall earnings growth for the S&P 500, and what is expected for the company's influence on the index in the future?
Nvidia's recent earnings report significantly boosted the overall earnings growth for the S&P 500. Initially, the S&P 500 was pacing for a growth rate of 5.7% in the first quarter. Following Nvidia's report, which surpassed expectations, this growth rate was revised upward to 6%. This indicates that Nvidia's performance had a substantial positive impact on the broader index's earnings growth for that period.
Looking ahead, however, the influence of Nvidia on the S&P 500's earnings growth is expected to diminish. Strategists, including Bank of America's Ohsung Kwon, predict that while Nvidia drove 37% of the S&P 500’s earnings growth over the past month, it is expected to represent just 9% in the next 12 months14. This suggests a broadening of market performance, where gains are expected to be more evenly distributed across different sectors and companies, rather than being heavily reliant on a single entity like Nvidia.
What specific economic indicators are investors looking forward to in the upcoming week that could influence Federal Reserve's decisions on interest rates?
Investors are keenly anticipating several key economic indicators in the upcoming week that could influence the Federal Reserve's decisions on interest rates. Firstly, the Personal Consumption Expenditures (PCE) index, which is the Fed's preferred inflation gauge, will be released. Economists expect the April "core" PCE, excluding food and energy, to show an annual gain of 2.8%, consistent with the previous month, and a monthly increase of 0.3%. This data is crucial as it provides insights into inflation trends, directly impacting the Fed's rate decisions.
Additionally, another update on U.S. economic growth for the first quarter of 2024 is scheduled. The secondary reading of the GDP is anticipated to show a decrease to 1.3% annualized growth, down from the initial estimate of 1.6%. This revision follows weaker retail sales data and could influence perceptions of economic strength and the necessity for rate adjustments3.
These indicators are part of a broader economic schedule that also includes a reading on consumer confidence, providing further context on the economic environment the Fed is considering in its rate decisions.