The stock market seems to be carefree. Investors likely figure that any signs of slower economic growth increase the odds that the Fed will ease. Plus, inflation remains remarkably subdued through May notwithstanding Trump's tariffs. June's CPI inflation rate is tracking around only 2.6% y/y according to the Cleveland Fed's Inflation Nowcasting model. The dollar's weakness is viewed as boosting corporate earnings. And stock investors probably figure that if the bond market doesn't seem to care much about the deficit-bloating potential of Trump's Big, Beautiful Budget Bill, why should they? "Summertime, and the livin' is easy," as the song goes from Porgy and Bess.
The stock market seems to be carefree. Investors likely figure that any signs of slower economic growth increase the odds that the Fed will ease. Plus, inflation remains remarkably subdued through May notwithstanding Trump's tariffs. June's CPI inflation rate is tracking around only 2.6% y/y according to the Cleveland Fed's Inflation Nowcasting model. The dollar's weakness is viewed as boosting corporate earnings. And stock investors probably figure that if the bond market doesn't seem to care much about the deficit-bloating potential of Trump's Big, Beautiful Budget Bill, why should they? "Summertime, and the livin' is easy," as the song goes from Porgy and Bess.
The regional business surveys conducted by five of the 12 Fed district banks suggest that the national manufacturing purchasing managers index (M-PMI) will be below 50.0 again during June when it is reported tomorrow morning (chart). It's been mostly below 50.0 since November 2022, yet real GDP has continued to grow over this period.
The five regional business surveys show that their average prices-received and prices-paid indexes stopped rising during June, after rising sharply early this year (chart). But inflation measures based on the CPI, PPI, and PCED have remained subdued. We reckon that's because while Trump's tariffs might have increased the prices of some imported goods, inflation remained subdued for most nondurable goods and services made in America.
In an interview today with CNBC's Jim Cramer, Amazon CEO Andy Jassy said the retail and tech giant hasn't seen significant price increases, and he explained why as follows: "We did a lot of forward buying several months ago, and then a lot of our sellers, our third-party selling partners, forward deployed a lot of inventory to avoid some of the issues with the uncertainty around where tariffs are going to settle," he said. "And we have, so far, not seen prices appreciably go up."
The regional business surveys suggest that the prices-paid component of the national M-PMI was flat in June after rising sharply in the first few months of this year (chart).
So far, the impact of Trump's tariffs on consumer prices are most visible in the prices of motor vehicle parts and accessories (chart). Trump imposed a 25% tariffs on such imports as well as 50% on steel and aluminum imports.
The S&P 500 is up 1.0% from its previous record high on February 19 (chart). Leading the way to the latest new high have been the Industrials (6.4%), Information Technology (5.3%), Communication Services (3.0%), Utilities (2.0%), and Financials (0.6%) sectors. Still below their February 19 levels are Health Care (-7.7%), Energy (-6.8%), Consumer Discretionary (-4.7%), Real Estate (-2.0%), Materials (-1.7%), and Consumer Staples (-1.1%). We continue to recommend overweighting Information Technology, Communication Services, Financials, and Industrials.
