* NASDAQ Composite up 18% in the first half of the year

* NVIDIA surges 1.5 times in six months

* US May PCE annual rate hits new low in over three years

The latest economic data indicates that the US core inflation annual rate has slowed to a new low in over three years. Both the S&P 500 Index and the NASDAQ Composite set new intraday records before falling back. By the close, the Dow Jones Industrial Average fell 45.20 points, or 0.12%, to 39,118.86; the S&P 500 Index declined 22.39 points, or 0.41%, to 5,460.48; the NASDAQ Composite closed at 17,732.60, down 126.08 points, a decrease of 0.71%.

May PCE Annual Rate Hits New Low in Over Three Years

The Bureau of Economic Analysis (BEA) of the US Department of Commerce released the latest data before the market opened, showing that the Personal Consumption Expenditures (PCE) price index for May rose 2.6% year-over-year, lower than the previous value of 2.7%. On a month-over-month basis, it was flat compared to April, a significant slowdown from the previous 0.3% increase. The Federal Reserve's most closely watched inflation indicator—core PCE, which excludes food and energy prices—rose 2.6% year-over-year, the smallest increase since March 2021, down 0.2 percentage points from the previous 2.8%. The Federal Reserve's policy target is 2%; the May core PCE increased 0.1% month-over-month, down from the previous 0.3%.

Advertisement

Breaking it down, in May, goods prices fell 0.4% month-over-month, with energy prices dropping 2.1%; service prices, however, rose 0.2% month-over-month, with housing prices increasing 0.4% for four consecutive months. Costs related to housing are more problematic than Federal Reserve officials previously anticipated and may prevent the Fed from implementing rate cuts later this year.

The report also showed that personal income in May rose 0.5% month-over-month, higher than the expected 0.4%, while consumption expenditure increased 0.2% from April, below expectations.

San Francisco Fed President Mary Daly commented that the data is further evidence that monetary policy is working and inflation is gradually cooling down. "It's a relief for businesses and households struggling with persistently high inflation, and it's also good news in terms of policy effectiveness."

Fitch Ratings' Head of US Economic Research, Olu Sonola, said in a report sent to Yicai Global journalists: "The core PCE monthly rate hitting a new low this year further proves that the disinflation process, which stalled in the first quarter, has restarted. If this trend continues for another two months, the Federal Reserve may finally gain the confidence to lower interest rates in September."As of the market close, according to the CME Group's FedWatch Tool, the market estimates a 64.1% probability of the Federal Reserve cutting interest rates at the September meeting, with a 35.9% chance of holding steady. Currently, the Federal Reserve continues to maintain interest rates at a high level of 5.25% to 5.50%, a position it has held for over 20 years.

The NASDAQ Composite Index surged 18% in the first half of the year

All three major stock indices ended June on an up note, with the NASDAQ and the S&P 500 Index rising by 6.0% and 3.5% respectively, while the Dow Jones Industrial Average (DJIA) only managed a 1.1% increase.

Closing out the first half of 2024, driven by the artificial intelligence (AI) boom, the technology stock-heavy NASDAQ led the major indices with a cumulative increase of 18.1%; the S&P 500 Index saw a gain of 14.6% during the same period; the DJIA lagged behind, with a cumulative increase of only 3.8%, partly due to an unusual correction in the second quarter, during which the DJIA fell 1.7% while the NASDAQ soared 8.3%; small-cap stocks underperformed in June, the second quarter, and year-to-date, with the Russell 2000 Index declining 0.8% in June and rising only 1.0% since the beginning of the year.

Chip stocks emerged as big winners, with NVIDIA leading the market with a 1.5-fold increase in its half-year gain, ARM's increase was close to 1.2 times, and Micron Technology and Broadcom rose by 54.1% and 43.8% respectively.

John Luke Tyner, a portfolio manager at investment firm Aptus Capital Advisors, stated that the stock market continues to show resilience and will need broader participation to reach new highs in the second half of this year. He added that the U.S. presidential election, the timing of interest rate cuts, and weak consumer demand, among other factors, could put pressure on the market. "If these factors come into play, we may see more volatility."