Daily Brief - One Step Closer to Seeing a Rate Cut?

TLDR: U.S. producer prices took a surprising dip in May, thanks to a drop in energy costs.

The producer price index (PPI) for final demand fell by 0.2% last month, following an unrevised 0.5% rise in April. Economists had expected a modest increase of 0.1%, but the numbers tell a different story. Year-over-year, the PPI rose by 2.2% in May, down slightly from April’s 2.3%.

This news comes hot on the heels of Wednesday's government data showing consumer prices remained flat in May—the first time in nearly two years—fueling optimism in the financial markets that the Federal Reserve might ease up on interest rates soon.

But don't expect rate cuts just yet. Fed officials hinted that any reductions could be delayed until December, with only one potential quarter-percentage-point cut on the table for this year.

Despite this cautious stance, economists remain hopeful for two rate cuts before the year ends, eyeing September as the possible starting point.

Scenario Spotlight: What's next for the S&P 500?

The chart above illustrates the historical response of the S&P 500 following the previous 16 instances when the US 10-year Treasury yield dipped below 4.3%. Could this indicate the market's lead-up to the first rate cut?

Market Movers: What about S&P sectors?

When yields cross below 4.3%, here are the historically best and worst performing sectors on a 1-month horizon:

Top 3 Performing Assets:

1. S&P Health Care: 3.76%
2. S&P Industrials: 3.58%
3. S&P Financials: 3.07%

Bottom 3 Performing Assets:

1. S&P Energy: 1.53%
2. S&P Consumer Staples: 1.36%
3. S&P Telecom: 0.89%

Earnings Spotlight: Accenture reports next week!

Accenture (ACN) is anticipated to report a slight year-over-year decline in earnings for the quarter ended May 2024. The consulting firm is projected to post quarterly earnings of $3.14 per share, reflecting a 1.6% decrease from the previous year. However, its revenues are expected to remain relatively stable at $16.57 billion, showing minimal change from the same quarter last year.