The three major US stock market price indexes (i.e., the S&P 500, Nasdaq, and DJIA) rose to record highs again today. So did the Russell 2000. Leading the way higher were technology stocks. Driving stock prices higher was a report that the US and Iran have "mostly agreed" to extend their ceasefire by 60 days. The market ignored a warning from ExxonMobil that oil inventories will fall to record lows in the coming weeks, possibly pushing oil prices as high as $150 per barrel. Meanwhile, Dell's stock price soared by 39% in after-hours trading following the company's fabulous earnings momentum (FEMO) report.
The latest economic releases show that while elevated oil prices are boosting inflation, they aren't slowing the economy:
(1) Inflation. Today we learned that April's headline PCED rose 0.4% m/m in February, with the core PCED up 0.2%, both 0.1ppt below consensus. Headline PCED rose 3.8% y/y, its highest since March 2023. Core PCED climbed 3.3% y/y, its highest reading since November 2023 (chart).
In April, all three measures of PCED goods inflation rose sharply (chart). PCED goods jumped 4.4% y/y, driven by a severe energy shock that pushed PCED nondurable goods up 4.9%. Concurrently, import tariffs continue to exert upward pressure on PCED durable goods, which rose 3.4% y/y. In his final press conference, Fed Chair Jerome Powell stated he expected the inflationary impact of tariffs to fade within two quarters. That's not happening yet.
PCED services edged up 3.5% y/y. It remains stubbornly high. The wage-sensitive super-core measure of PCED services (i.e., excluding energy and housing) also rose 3.5%. The 3.2% y/y uptick in PCED housing & utilities was driven higher by shelter costs and a sharp rise in household energy utility rates (chart).
