Last week's economic data presented a mixed bag, arriving against a backdrop of an S&P 500 that trended upwards for the entire week, buoyed by positive developments in trade talks. While April brought further welcome news on the inflation front, with the Consumer Price Index continuing its downward trend to a multi-year low, underlying consumer fundamentals painted a more concerning picture. Consumer sentiment continued its steep decline, reaching its second-lowest reading on record as worries about the economy and the impact of tariffs persisted. This growing pessimism was reflected in a significant slowdown in retail sales following March's tariff-anticipation surge.
Consumer Price Index
April marked the third consecutive month of cooling inflation, with the Consumer Price Index (CPI) reaching its lowest point in over four years. The CPI increased by 2.3% last month, a dip from March's 2.4% and below the anticipated 2.4% rise. Month-over-month, prices edged up by 0.2%, a smaller increase than the expected 0.3% and a shift from March's 0.1% decline. Core inflation, which excludes volatile food and energy prices and is closely monitored, held steady at a four-year low of 2.8% in April, aligning with expectations. Similarly, core prices rose by 0.2% on a monthly basis, less than the projected 0.3% increase and following March's 0.1% uptick.
Driving the overall price increase in April were higher shelter costs, which accounted for over half of the monthly gain. Contributing to the rise were also natural gas and electricity, household furnishings and operations, medical care, motor vehicle insurance, education, and personal care. Conversely, prices for food, gasoline, airline fares, used cars and trucks, communication, and apparel all saw declines.
Despite this welcome news of lower-than-expected inflation for consumers, the Federal Reserve is likely to maintain its "wait-and-see" approach as it assesses the impact of tariffs and ongoing trade policy developments.
Michigan Consumer Sentiment
Consumer sentiment fell for a fifth straight month as economic uncertainty, inflation worries, and weakening incomes continue to drag down consumer attitudes. The Michigan Consumer Sentiment Index fell 1.4 points to 50.8 this month, its second-lowest reading on record. This represents a 2.7% decline from April’s final reading and a 26.5% drop from one year ago.
The current conditions index dropped for a fifth straight month to its lowest level since June 2022 while the expectations index fell further, remaining at a 45-year low. While most components of the index were little changed this month, current assessments of personal finances fell sharply as consumers reported weakening incomes. Additionally, consumers continue to mention “tariffs” in their responses as trade policy uncertainty remains top of mind for consumers.
Inflation expectations continued to rise for both the near and long term. Year ahead expectations rose for a sixth straight month to 7.3%, the highest level since November 1981, while five-year expectations jumped to 4.6%, the highest since 1991.
The Consumer Discretionary Select Sector SPDR ETF (XLY) is tied to consumer sentiment.
Retail Sales
U.S. consumer spending slowed considerably in April after a spending spree in March where consumers frontloaded purchases in an attempt to avoid tariff-related price hikes. Retail sales inched up 0.1% last month after surging 1.7% in March. This was higher than the 0.0% forecast. Core sales, which exclude autos, were also up last month, rising 0.1%. This was down from 0.8% in March and lower than the expected 0.3% growth. Meanwhile, control purchases — a crucial GDP input and an even more “core” view of retail sales — unexpectedly fell 0.2% last month. This was down from 0.4% in March and lower than the expected 0.3% growth.
The slight increase in sales last month was driven by increased sales at restaurants and bars (1.2%) and building material and garden supply stores (0.8%). On the other end, there was a sharp pullback in spending at sporting goods, hobby, music, and book stores (-2.5%), miscellaneous store retailers (-2.1%), gas stations (-0.5%), and clothing stores (-0.4%).
Retail sales could impact the SPDR S&P Retail ETF (XRT), VanEck Retail ETF (RTH), Amplify Online Retail ETF (IBUY), and ProShares Online Retail ETF (ONLN).
Market Reactions
The S&P 500 posted gains every day last week, climbing 5.3% from the previous Friday. As a result, the SPDR S&P 500 ETF Trust (SPY) rose 5.3% last week. Meanwhile, the S&P Equal Weight Index was up 4.3% from the previous week and the Invesco S&P 500® Equal Weight ETF (RSP) rose 4.3%.
The 10-year Treasury yield finished the week at 4.43%, while the 2-year note finished at 3.98%.
The CME FedWatch Tool currently shows a 91% likelihood that the Fed will hold rates steady at their next meeting in June. Markets are pricing in two 25 basis point cuts for later this year coming at the September and December meetings. Additionally, two 25 basis point cuts are projected in 2026.
Economic Data in the Week Ahead
The economic calendar for the upcoming week features limited releases. April's data on both existing and new home sales will be reported. Additionally, the Chicago Fed will publish its National Activity Index (CFNAI), and the Kansas City Fed will release its regional manufacturing index.
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