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Fed decision and inflation reports will rock markets

If you ask Wall Street and anyone buying a home or selling an office building what they dream of, it’s simple: lower interest rates.

And they may be a bit nervous. They heard noises all last week that the economy was slowing. Prices were falling. Layoffs were expanding. Bond yields were falling.

The conventional wisdom said the Federal Reserve would starting cutting rates, perhaps by September.

And then the jobs report for May, released Friday, said job growth was terrific, but the unemployment rate was above 4% for the first time since January 2022.

Related: Surprise jobs report pummels Fed rate-cut bets

The job-growth data killed, at least on Friday, the rate-cut-is-at-hand idea.

The Fed meeting is the big event of the week ahead.

Normally, it’s quiet the week after the jobs report is issued. This time, there’s a lot to watch, from more inflation data, how investors deal with Nvidia’s  (NVDA)  giant stock split and, lastly, the continuing fight over how much Elon Musk should be paid at Tesla  (TSLA) .

Markets stumble on the jobs report

Stocks fell Friday (though not a lot) on the jobs report for the day and mostly for the week. Bond yields and consumer rates moved up. The questions surrounding rates, however, are still on the table, including:

  • What constitutes a sustainable path of inflation moving toward 2% a year. That’s what the Fed is always harping on.

  • Is the Fed confident the economy is not slowing down?

  • How will the Fed respond to rate-cutting moves by other central banks? The European Central was the latest to cut its rate this week.

They may dominate the press conference Fed Chairman Jerome Powell will hold Wednesday afternoon after the Fed announces its latest decision on interest rates.

What will the Fed decide? Probably to leave rates alone, with the Fed’s key federal funds rate left at 5.25% to 5.50%. That’s where it has been since July 2023.

The Federal Open Market Committee, the Fed’s rate-making body, has been focusing for the last two years on wringing the domestic inflation rate down almost to the exclusion of everything else.

One last note about the Fed. This is a meeting where the members of the FOMC pencil in their best guesses about where the economy and interest rates are headed.

The Fed’s website will report their guestimates in what’s known as the dot-plot. It’s not official, but investors take it very seriously.

CPI and PPI demand attention

At the same time the Fed meets to discuss policy, two big inflation reports come out: the all-important Consumer Price Index report on Wednesday and the Producer Price Index on Thursday.

The first is increasingly controversial because its methodology is heavily weighted toward housing costs. The second measures how prices are changing on goods produced.

The CPI report for May is expected to show prices rising at a 3.4% annualized rate, unchanged from April, with the core CPI at 3.5%, down a little from April.

The PPI is expected to show an increase of 2.2% from May 2023.

More on markets and the economy

Will Apple finally embrace AI

Apple  (AAPL)  has been noticeably quiet about climbing onto the artificial intelligence bandwagon, only promising to announce something this year.

This week, the iPhone maker will hold its annual developer conference in Cupertino, Calif., and there’s speculation that there may be details on Apple’s AI plans.

There will also be announcements of upgrades to various products and maybe a new iPhone.

PC Magazine says there’s talk the iOS 18 system may offer a feature that translates the spoken word into notes for the user.

Apple’s shares have struggled this year, up just 2.3% to $196.89 on Friday and 2.4% this past week. Its 52-week high was 199.62, reached on Dec. 14, 2023.

But something is brewing. The shares are up 19% since April 19.

Customers shopping for Apple products at an Apple store in Hangzhou, China. 

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Customers shopping for Apple products at an Apple store in Hangzhou, China.

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Nvidia’s giant stock split is here

Shares of chip giant Nvidia closed Friday at $1,208.88. That was down $1.10 on the day and 3.7% from its all-time high on June 6. But the shares are up 144.1% this year alone after a 239% gain in 2023.

On Monday, Nvidia’s Friday close should be listed at $120.89, reflecting the company’s 10-for-1 stock split. It is the company’s sixth stock split since June 2000 — and, by far, the biggest.

The big number aside, the split will only mean shareholders will have more shares. The value of their investment will remain the same, and there are no tax consequences.

Companies split their stocks mostly to make shares more affordable to investors and/or employees.

Walmart  (WMT)  split its shares 3-for-1 on Feb. 26. One effect was to allow the managers of the Dow Jones Industrial Average to reorganize the index and admit  (AMZN)  to the group.

Earnings ahead this week

  • Oracle ORCL and meme stock Gamestop  (GME) , due Tuesday.

  • Broadcom  (AVGO) , due Wednesday.

  • Adobe  (ADBE) , due Thursday.

Elon Musk and his giant pay package

Shareholders of electric-vehicle maker Tesla will vote at the company’s annual meeting Thursday on founder and CEO Elon Musk’s pay package, approved in 2018. A Delaware court threw the package out in January.

The package, which mostly compensates Musk in stock, is reportedly now worth $56 billion. Some shareholders successfully sued Tesla in Delaware, where the company is incorporated, saying the package is too expensive.

The battle over the deal has been intense, in part because Musk has made noises he might not stay at Tesla if the vote goes against him.

Norway’s sovereign wealth fund said Saturday it is voting against the package. The fund, which about 1% of Tesla, voted against the first time it was proposed.

“If Tesla is to retain Elon’s attention and motivate him to continue to devote his time, energy, ambition and vision to deliver comparable results in the future, we must stand by our deal,” Robyn Denholm, the company’s chair, wrote to investors on Wednesday, according to the New York Times.

A separate vote will decide if Tesla should reincorporate in Texas, which has more management friend corporate management laws.

Musk was once the world’s richest man because the value of the package was included in estimates of his net worth.

Tesla shares, up 102% in 2023, are down nearly 29% this year because slowing electric-vehicle sales generally.

Tesla co-founder Elon Musk at the Milken Institute's Global Conference in May. 

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Tesla co-founder Elon Musk at the Milken Institute’s Global Conference in May.

Apu Gomes/Getty Images

Are there storm clouds brewing?

Maybe. Stocks ended the week mostly flat. Interest rates moved lower, a possible signal bond investors are worried about a slowing economy. Some technical measures broke down this past week. Not badly but enough to demand notice.

A clearer picture will emerge this week with a long series of auctions of federal debt.

Among the bonds being sold are a series of 30-year bonds. The last auction produced a yield of 4.65%. A big jump in yields will not make the Fed happy not the stock market.

A big drop in the yield may be a signal of a weakening economy.

Related: Veteran fund manager picks favorite stocks for 2024

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