Stocks rise after inflation data; Dow aims to end longest weekly losing streak since 1932

Stocks rise after inflation data;  Dow aims to end longest weekly losing streak since 1932

US stocks rose Friday after the Federal Reserve’s preferred measure of inflation for April provided in line with market expectations, with the smallest increase in a year and a half.

How are stock-index futures trading?
  • The Dow Jones Industrial Average DJIA
    was 245 points, or 0.75%, at 32,882.

  • The S&P 500 SPX
    rose 62 points, or 1.5%, to 4,120.

  • The Nasdaq Composite COMP
    jumped 266 points, or 2.3%, to 12,006.

Stocks rallied sharply on Thursday and all three indexes are looking at strong gains for the week after the S&P 500 came within a whisker of falling into a bear market. The Dow was on track to break a streak of eight weekly losses, its longest since 1932, according to Dow Jones Market Data, while the S&P 500 and Nasdaq Composite were set to end a stretch of seven straight weekly falls.

What’s driving the markets?

The personal consumption expenditure index rose just 0.2% in April for its smallest monthly increase in a year and a half, due largely to a decline in gas prices which have subsequently rebounded, though there were other hints that a surge in inflation might be abating.

The rate of core inflation in the past year, the Fed’s preferred measure, slowed to 4.9% from 5.2%, a second straight decline. The last time the core rate saw back-to-back declines was in the first few months of the pandemic in early 2020.

Data also showed the savings rate fell to 4.4% in April from 5% in March.

“A falling savings rate tells me that consumers are dipping into savings to offset a subpar wage growth unable to keep up with inflation,” said Jeffrey Roach, chief economist for LPL Financial, in emailed comments, noting that credit-card usage has also rebounded in recent months, helping to drive the consumer-spending engine.

The data showed real spending rose 0.7% from a month ago, “showing a relatively solid consumer able to withstand tightening monetary conditions. On net, this is a decent report for Fed policy makers,” Roach said.

Meanwhile, the University of Michigan’s gauge of consumer sentiment fell to a final May reading of 58.4 from the initial reading of 59.1 earlier in the month, its lowest level in more than 10 years. Economists were expecting a reading of 59.1, according to a Wall Street Journal survey. Americans’ expectations for overall inflation over the next year fell to 5.3% in May from 5.4% in April, while expectations for inflation over the next 5 years remained at 3%.

.And: What if we get a ‘soft landing’ for the economy after all?

Thursday’s gains in stocks stemmed from some relief over the minutes of the Fed’s early May meeting which drove speculation over a potential pause in interest rate hikes later this year. A hardy batch of earnings reports from retailers also helped boost stock prices.

Read: Forget the ‘Fed put’ – here is how corporate buybacks could rescue stocks

While major US stock indexes are poised for gains this week, wariness remains among analysts over whether Wall Street volatility may have merely ebbed for now. “The equity market reacted exuberantly to the near term recession fears abating, but the haven bid has not faded from the Treasury market,” said Michael O’Rourke, chief market strategist at JonesTrading,

“It is only a matter of time before yields are back above 3%. If it happens in the next few days, that month end rebalance will flip. Fading recession fears and the prospect of China reopening is setting the stage for energy to breakout,” as crude and natural-gas prices remain elevated, he said.

“The upward inflation spiral is teetering on heading to a very painful place. Ace
we have repeatedly noted, the longer markets continue to deny the reality of the need to reprice and tighten financial conditions, the more leeway the FOMC has to continue to tighten,” said O’Rourke.

see: Even this pessimistic Bank of America strategist says the bear-rally bandwagon has room to charge ahead

What companies are in focus?
  • Retailers were also in focus Friday, but the news wasn’t so positive. Big Lots Inc. BIG shares sank 13% after the big-box retailer swing to a surprise loss and sales miss. stock-in Gap Inc. gps tumbled 4.6% after the clothing retailer reported a wider-than-expected loss and disappointing forecast. Costco Wholesale Corp. COST raked in $1 billion more than expected in revenue in its latest quarter, but missed on same-store sales. Shares ticked up 0.6%.

  • Dell Technologies Inc.
    DELL
    stock rose 13% after the computer equipment maker reported higher first-quarter sales and lower operating expenses.

  • Baidu Inc.’s
    BIDU
    Hong Kong-listed shares HK:9888
    emerged 14% after the Chinese search engine’s first-quarter results beat expectations and as several analysts raised their stock-price targets. US-listed shares rose 0.3%.

  • Marvell Technology Inc. shares MRVL
    were up 4.2% after the semiconductor group reported solid earnings results and slightly-better-than expected guidance.

  • Ulta Beauty Inc.
    ULTA
    shares jumped 8.8% after the beauty products retailer lifted its full-year sales and earnings guidance Thursday after better-than-expected first-quarter results.

  • Shares of Workday Inc.
    WDAY
    fell 9% after the human resources cloud-software company on Thursday reported earnings that missed the Wall Street consensus and slightly raised its forecast.

How are other assets trading?
  • The yield on the 10-year Treasury note BX:TMUBMUSD10Y
    fell 3 basis points to 2.72%. Yields and Treasury prices move opposite each other.

  • The ICE Dollar Index DXY,
    which measures the greenback against major currencies, was off 0.1%.

  • Oil futures CL00
    fell, with West Texas Intermediate crude for July delivery CLN22
    down 0.2% to $113.81 a barrel. Gold GC00
    for June delivery rose 0.3% to trade near $1,853 an ounce.

  • BitcoinBTCUSD
    was off 2.4% to $28,930.

  • In European equities, the Stoxx Europe 600 XX:SXXP
    rose 1.2%, while London’s FTSE 100 UK:UKX
    gained 0.3%.

  • In Asia, the Shanghai Composite CN:SHCOMP
    rose 0.2%, while Hong Kong’s Hang Seng Index HK:HSI
    rose 2.8% and Japan’s Nikkei 225 index JP:NIK
    rose 0.6%.

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