U.S. Macro Data Signals Cooling Inflation – Wall Street Responds with Gains

U.S. equity markets closed higher on Thursday following the release of several key macroeconomic indicators that pointed to a mild slowdown in economic activity. Investors interpreted the data as supportive of a potential Federal Reserve rate cut later this year. The reports—existing home sales, durable goods orders, and initial jobless claims—painted a mixed yet inflation-moderating picture.

Existing Home Sales: Steeper-Than-Expected Decline

Existing home sales fell by an annualized rate of 4.3% to 4.19 million units—the lowest level since November. The sharper-than-anticipated drop was attributed to rising mortgage rates and an acute housing supply shortage. According to the National Association of Realtors (NAR), housing inventory remains approximately 20% below long-term averages, sustaining upward pressure on prices even amid softening demand.

Durable Goods Orders: Signs of Business Investment Slowdown

New orders for durable goods rose by just 0.2% in March, underwhelming expectations for a 0.5% increase. Core orders, which exclude transportation, declined by 0.1%, suggesting weakening business investment appetite. Defense-related orders surged, but gains were offset by declines in machinery and industrial equipment. While the data suggests a reduction in inflationary pressure, it also raises concerns about the momentum of business activity.

Jobless Claims: Modest Uptick Signals Labor Market Fatigue

Initial jobless claims rose to 218,000 for the week ending April 20—an increase of 5,000 compared to the previous week and slightly above analyst forecasts. This marked the second consecutive weekly increase, potentially signaling the first signs of cooling in the previously resilient labor market. However, continuing claims remained relatively stable, tempering the downside narrative.

Market Reaction: Renewed Investor Optimism

Despite the mixed nature of the data, equity markets rallied as investors grew more confident that the Fed may adopt a dovish stance in the months ahead.
The S&P 500 (SPY) climbed 0.8%, while the tech-heavy Nasdaq 100 (QQQ) advanced 1.4%, buoyed by strength in technology and consumer discretionary sectors. Treasury yields declined sharply, and the U.S. dollar weakened modestly against a basket of global currencies.

Earnings Season: Will Positive Surprises Follow?

Expectations for thin profit margins in Q1—driven by elevated financing costs and cautious consumer spending—have set the stage for stronger market reactions to positive earnings surprises. Companies demonstrating revenue resilience and improved profitability, particularly in technology and financials, are likely to be rewarded. Conversely, highly leveraged firms or those reliant on consumer demand may struggle, especially if market sentiment turns negative following future data.

Fed in Focus: Balancing Patience with Proactive Communication

The Federal Reserve now faces a delicate balancing act: on one hand, it seeks consistent evidence of slowing inflation before cutting rates. On the other, early signs of labor market weakness and cooling activity in certain sectors may push the Fed to adopt a more cautious tone. If the current trend of weak-but-not-catastrophic data continues, policymakers may lean on dovish rhetoric without committing to imminent policy shifts. Chair Powell’s upcoming speech at the St. Louis Economic Summit this weekend could serve as a key inflection point for market expectations.