When the Bureau of Economic Analysis (BEA) posted the price consumption expenditure report on Thursday, stock markets initially traded lower. News that Iran and the U.S. were close to a peace agreement, however, overshadowed the report.
Markets decided to ignore the weak disposable income data. In April, DPI fell by 0.1% to $19.9 billion, while PCE increased 0.5% to $111.1 billion. Much of the drop in April personal income is due to a fall in farm proprietors’ income.
Monthly spending for goods increased. Items that increased by 10% or more were food services and accommodations (+11.3%), recreation services (+12.1%), housing and utilities (+22.7%), and gasoline and other energy goods (+28.8%). In contrast, motor vehicles and parts fell by 9.2%.
Even though the data is backward-looking, investors need to monitor the Strait of Hormuz. If shipping traffic is still below 10 ships a day, no peace deal will matter. That would give Chevron (CVX) and Exxon (XOM) a boost. Conversely, any signs that shipping traffic resumes would send WTI crude prices lower. It would hurt the energy rally that lifted stocks like Enbridge (ENB), Occidental Petroleum (OXY), or Devon Energy (DVN).
The higher spending on accommodations is not actionable. Demand for Hilton (HLT) is not yet known, since investors do not know if the FIFA World Cup will drive bookings higher.
Your Takeaway
The red-hot AI semiconductor trade and peace hopes are the primary drivers for the indices. Unless the next inflation report is too hot, the stock market is not likely to fall.
