Last week was a mixed bag as investors weighed positive economic news against concerns that stock prices for some chipmakers may not be sustainable. Here are the highlights:

• Inflation slowed to zero.

On Friday, one of the Fed's favored measures of inflation – the Personal Consumption Expenditures (PCE) Index – showed that headline inflation was flat in May. Both headline inflation and core inflation, which excludes volatile food and energy prices, were up 2.6 percent year over year. That's a significant improvement from May 2023 when headline inflation was 3.8 percent year over year, and core inflation was 4.6 percent. The Fed's target is 2.0 percent.

Falling inflation bolsters "the case for lower interest rates later this year. At the same time, household spending rebounded after a pullback in April, and incomes showed solid growth, offering some hope that price pressures can be tamed without lasting damage to consumers," reported Augusta Saraiva of Bloomberg.

• The banks are alright.

Every year, the Federal Reserve (Fed) conducts a stress test to see whether "large banks* are sufficiently capitalized and able to lend to households and businesses even in a severe recession. They evaluate the financial resilience of banks by estimating losses, revenues, expenses, and resulting capital levels under hypothetical economic conditions."

Last week, the Fed released its report, and all the banks tested – 31 of them – passed. Each bank was able to absorb losses in highly stressful hypothetical scenarios while maintaining its minimum capital requirements.

• AI stocks were up and down.

Investors have high expectations for artificial intelligence (AI) chipmakers. As a result, share prices for many chip companies have dramatically increased in value over the past year. Last week, we saw some volatility. A leader in the category experienced a correction, which is a decline of at least 10 percent, before rebounding, reported Charlotte Yang and Yoolim Lee of Bloomberg.

In addition, we saw the stock price of a company that makes computer memory chips drop after it reported earnings last week. The company's "shares had more than doubled in the year prior to its Wednesday report, but — even with an outlook roughly in line with the average of analyst estimates — the company was punished for not outperforming elevated expectations."

Last week, major stock market indices delivered a mixed performance. Connor Smith of Barron's reported, "The Dow rose 3.8% in the first half of the year. The S&P 500 rose 14.5%. The Nasdaq Composite rose 18%." Yields on longer maturities of U.S. Treasury bonds moved higher over the week.

For more information on how to be financially prepared, contact our office at (405) 340-1717 or email greg@womackadvisers.com 

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