May 15, 2024
The S&P 500 rose 1.2% and topped 5,300, marking its 23rd record close of 2024, after inflation finally cooled enough to revive confidence in Federal Reserve rate cuts. Core CPI, excluding food and energy, increased 0.3% from March, breaking a run of three hotter-than-expected readings. The year-over-year core measure slowed to its weakest pace in three years, while retail sales stalled after prior months were revised lower. Treasury yields fell across the curve, with the 10-year yield down 10 basis points to 4.34%, and the dollar dropped against developed-market peers. The market’s message was clear: slower inflation is bullish, as long as slower growth does not become a recession.
Cooler Inflation, Higher Stocks
The rally was broad, with most major S&P 500 groups advancing. Nvidia led chipmakers higher, homebuilders jumped, and Wall Street’s fear gauge, the VIX, sank to its lowest level since January. Fed swaps moved to price roughly two quarter-point rate cuts by the end of 2024, a meaningful shift after months of concern that inflation was becoming entrenched. Inflation expectations also eased, with the five-year breakeven rate tumbling as traders pared assumptions about future price pressure.
That combination matters because lower expected inflation gives the Fed more room to cut without appearing to abandon its 2% target. Krishna Guha at Evercore said the April inflation print was consistent with a September cut followed by another in December, while Brian Rose at UBS Global Wealth Management also maintained a September-cut view. The producer-price backdrop was seen as supportive for the Fed’s preferred personal consumption expenditures price index as well. For interview preparation, candidates should be able to explain why a softer CPI print can lift equities, lower yields and weaken the dollar at the same time.
Soft Landing or Slowdown
The risk is that the same data supporting rate cuts also hints at weaker demand. Retail sales stalled, and a run of softer jobs, services and manufacturing data pushed the US version of Citigroup’s Economic Surprise Index to its lowest level since January 2023. Chris Zaccarelli at Independent Advisor Alliance framed the split directly: inflation did not reaccelerate, but consumers appeared to be reducing spending. Seema Shah at Principal Asset Management said cooling consumer spending is helpful, but a deeper slowdown would create problems markets would not welcome.
That is the central tension behind the record high. Investors are cheering the return of a “when,” not “if,” rate-cut debate, but the Fed still wants more evidence. Minneapolis Fed President Neel Kashkari said rates likely need to stay at current levels for a while longer, and a Bank of America team led by Michael Gapen kept its first-cut call at December. Tiffany Wilding at Pacific Investment Management also warned that policymakers may keep rates on hold if inflation does not show sustained deceleration.
Equity strategists still leaned constructive. Brian Belski at BMO Capital Markets lifted his year-end S&P 500 target to 5,600, while Jay Hatfield at Infrastructure Capital Advisors said a 5,750 target could prove conservative if global rate cuts and AI support stocks and bonds. That optimism is reasonable, but it depends on a narrow path: inflation must keep cooling without consumer weakness turning into a hard landing.