Next week will be the last trading week of the month, quarter, and first half of the year, with the S&P 500 up 13.8% so far in 2023. Historically, whenever the S&P 500 is up at least 10% year-to-date as of the end of June, the index ended the year higher 82% of the time, gaining 7.7% on average, according to research from the Carson Group.1 We’ll receive more updates on the housing market next week with April home prices and May new home sales. On Friday, the Bureau of Economic Analysis (BEA) will release the Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation gauge. We’ll also get consumer sentiment readings from the Conference Board and University of Michigan, and the final estimate for first-quarter gross domestic product (GDP). Inflation and unemployment readings for the eurozone will also become available. Carnival Cruise Line, Walgreens, Micron Technology, General Mills, and Nike will report earnings next week.
Home Price Update
We’ll get the latest data on U.S. home prices on Tuesday with the Case-Shiller Home Price Index and the Federal Housing Finance Agency’s (FHFA) House Price Index for April. Home prices as tracked by the Case-Shiller Index likely rose 0.8% in April after rebounding 1.5% in March, but were likely down 1.5% year-over-year. In March, prices fell on an annual basis for the first time since early 2012, in a sharp reversal from the record high growth rates seen a year earlier, before the Federal Reserve’s interest rate hikes impacted housing demand. The biggest annual declines were recorded in Seattle and San Francisco, while prices in Miami, Tampa, Charlotte, and Atlanta were still higher compared to a year ago.
The Fed’s Preferred Inflation Gauge
On Friday, the Bureau of Economic Analysis (BEA) will issue the Personal Consumption Expenditures (PCE) Price Index—the Fed’s preferred inflation gauge—for May. Prices are projected to have risen 0.2% last month following a 0.4% increase in April. They were likely up 4.1% on an annual basis, decelerating from 4.4% in April. Core PCE prices, which exclude volatile food and energy costs, likely rose 4.5% from a year earlier, decelerating from 4.7% in April. The Federal Reserve targets a 2% annual PCE inflation rate as part of its dual mandate of price stability and full employment.
The PCE Price Index is the Fed’s preferred inflation gauge as it tracks consumers’ spending decisions more closely than the Consumer Price Index (CPI). While the CPI uses a fixed basket of goods and services, the components of the PCE Price Index are updated more frequently to reflect changing consumer tastes and preferences.