Blast from the Past. Oil prices moved slightly lower on Wednesday, but markets were buoyed to new heights by the strength of the tech sector. Plus, the new Federal Reserve chair cleared his final confirmation hurdle this afternoon, which likely alleviated some lingering uncertainty at the central bank, and among investors.

The tech heavy Nasdaq Composite Index closed up 1.2% today, while the S&P 500 gained 0.6%. Both performances set fresh record highs. The Dow Jones Industrial Average, however, fell 0.1%.

Incoming Fed Chair Kevin Warsh was confirmed by the Senate with a vote of 54-45 on Wednesday afternoon, becoming the 17th person to take on the job. Pennsylvania Democrat John Fetterman was the lone Democrat to support his appointment. Warsh’s confirmation comes just a few days before Jerome Powell’s term as chair expires Friday.

While a leadership change at the Fed is always significant, Warsh may not be able to make big changes to interest rate policy as inflation continues to rise and employment remains relatively stable.

In fact, the latest economic data released this morning showed that wholesale inflation soared in April, landing back at the record-hot levels last seen four years ago. Perhaps more concerningly, the latest data indicate that higher oil costs are starting to seep through to other parts of the economy.

The producer price index for total final demand rose 1.4% in April, double the expectation from economists and the revised 0.7% monthly advance in March, the Bureau of Labor Statistics reported today. That was the largest monthly increase since rising 1.7% in March 2022.

The sharp monthly advance in April translated into a 6% year-over-year gain, the highest annual increase since December 2022. That was also higher than economists’ expectations, and a notable acceleration from the revised 4.3% rate logged in March.

The inflation increase was more broad-based than just simple higher fuel prices. Nearly 60% of the April rise can be attributed to a major jump in the index for final demand services, which rose 1.2% month over month in April, according to the BLS. Wholesale perishable food prices—particularly produce and diary—also posted sharp gains, signaling the impact of higher transportation costs.

The rising input costs from a constrained global fuel supply amplifies the risk that consumer prices will continue to increase in the coming months. And that further complicates the economic picture for the Fed, which has been struggling to keep rates restrictive enough to get inflation back to the 2% target.

The Hot Stock: Ford Motor Company +13.2%
The Biggest Loser: AppLovin Corp. -7.6%

Best Sector: Communication Services +2.7%
Worst Sector: Utilities -1.7%

American consumers are still spending thanks to higher-than-usual tax refunds, but a mixed bag of economic data shows that they might finally be starting to slow down.   

Retail sales in April are expected to rise 0.6% month-over-month, according to economists surveyed by FactSet. That would be a solid result, but a pullback from the 1.7% monthly gain in March. 

Other retail estimates however, vary widely, and present a more complicated picture. Some economists, including those at Goldman Sachs and JPMorgan, are expecting a notable pullback in April consumer spending—though not a complete decline. They cite data that shows lower auto and restaurant sales.

Then there’s the Federal Reserve Bank of Chicago’s National Retail Spending Indicator, which is projecting 0.8% monthly growth. Ed Yardeni, president and chief investment strategist of Yardeni Research, is also expecting a big print, pointing to the fact that Redbook’s same-store sales data have been holding strong. Sales rose 7.8% year over year for the week ending on May 1, the highest reading since late 2022.

A historic leap in gasoline prices because of the war in Iran largely drove March’s consumer spending jump. But while gas spending is expected to remain elevated in April, data shows that the price jump was not as severe. Samuel Tombs, chief U.S. economist at Pantheon Macroeconomics, estimates that higher gasoline prices will likely only add roughly 0.3 percentage points to headline sales in the April data.

Higher tax refunds should continue to support consumer spending for a bit longer, though higher-income households will likely see greater benefits, according to the economics team at the Royal Bank of Canada. “This dynamic also means we expect to see consumer sentiment continue to grind lower, as middle- and lower-income households bear the brunt of inflation’s impact on their household budgets,” RBC writes. 

As for when the consumer will finally tire out, many economists expect to see conditions deteriorate later in the second quarter of this year. “The real test will come in May, by which point the flow of tax refunds will have tapered off significantly, while high gas prices probably will remain elevated,” Tombs writes.

Applied Materials, Brookfield, Figma, Klarna, QXO, Versant Media Group, and Viking Holdings report quarterly results tomorrow. 

President Donald Trump is meeting with his counterpart President Xi Jinping in China. The two-day summit was originally scheduled for March but was delayed due to the war with Iran. 

The Census Bureau reports retail and food services sales for April. Economists forecast a 0.6% month-over-month rise, after a 1.7% jump in March. Excluding autos and gas, retail sales are seen increasing 0.4%, two-tenths of a percentage point less than previously. 

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