Week 21 in Brief
U.S. stocks closed higher on Friday, gained for the week, and closed a fourth straight positive month amid growing optimism over the U.S. economic recovery, despite inflation running at its highest annual rate in about 13 years.
How did the major indices perform?
- On Friday, the Dow Jones Industrial Average closed 64.81 points higher to end at 34,529.45, a gain of 0.2%. The Dow booked a weekly gain of 0.9% for a rise of 1.9% in May, marking its fourth monthly gain in a row.
- The S&P 500 advanced 3.23 points, or 0.1%, at 4,204.11. The S&P 500 was up 1.2% on the week for a May gain of 0.6%, also marking its fourth straight monthly advance.
- The Nasdaq Composite rose 12.46 points, or 0.1%, to reach 13,748.74. The Nasdaq had a weekly gain of 2.1%, but a 1.5% decline in the month to date.
- On Thursday, the Dow closed up 141.59 points, or 0.41%, to 34,464.64; the S&P 500 index finished up 4.89 points or 0.12% at 4,200.88; the Nasdaq Composite slipped 1.72 points or 0.01% to 13,736.28.
- The small-cap Russell 2000 index closed up 1.1%, or 23.80 points, to reach 2,273.07. Small-cap Russell 2000, which is more leveraged to the economic reopening, eked out a slight gain this.
What drove the market?
- U.S. equity market investors closed out May with major indexes near all-time highs, after Wall Street sorted through the latest consumer spending, income, and inflation data, along with news on the fading pandemic.
- Inflation Concerns: A key inflation indicator — the core personal consumption expenditures index — rose 3.1% in April, faster than expectations of a 2.9% increase but not as hot as many on Wall Street had feared. That reading on inflation comes as U.S. consumer incomes dropped 13.1% in April after government stimulus checks for Americans ended, but consumer spending climbed 0.5% last month, matching consensus estimates. However, inflation worries appear to be creeping into the psyche of American consumers.
- Meanwhile, the savings rate remained elevated at 14.9% last month, while consumer spending rose 0.5%, in line with estimates. A final reading of the consumer-sentiment index issued Friday edged up to 82.9 from an initial 82.8, the University of Michigan said Friday, down from a 13-month high of 88.3 in April.
- Economic Data: In other economic data, the Chicago Business Barometer, also known as the Chicago PMI, jumped to 75.2 in May from 72.1, which was the highest since December 1983.
- Biden’s Budget Proposal: President Joe Biden’s administration unveiled its $6 trillion budget Friday, projecting a deficit of $1.8 trillion for the next fiscal year as the White House pushes for big spending on things like infrastructure and education. While the projected deficit is high by recent historical standards, it’s a sharp drop from the $3.1 trillion recorded last year under former President Donald Trump. “Failing to make these investments at a time of such low-interest costs would be a historic missed opportunity that would leave future generations worse off,” acting Office of Management and Budget Director Shalanda Young told reporters.
- Coronavirus: There is growing optimism in the U.S., where COVID-19 cases, deaths, and hospitalizations have fallen fast since the vaccine program kicked into high gear. Daily deaths are at their lowest level since last summer, while cases are down 35% from two weeks ago, according to a New York Times tracker.
Which stocks were in focus Friday?
- Salesforce closed 5.4% higher after the enterprise software company reported better-than-expected first-quarter results late Thursday.
- HP stock fell 8.9% after the company reported better-than-expected fiscal second-quarter results.
- “Meme” stocks have been in focus lately, with shares of AMC Entertainment surging more than 119% so far this week, and those for videogame retailer GameStop Corp. were up by about 44% over the period. On Friday, shares of AMC ended 1.5% lower and GameStop’s were down 12.6%.
- Boeing shares were in focus on Friday after WSJ reported that the aeronautics company halted deliveries of its 787 Dreamliners, adding fresh delays for customers. Its stock declined 1.5%.
- Shares of Eton Pharmaceuticals Inc. traded 16.8% lower after the company said the Food and Drug Administration issued a complete response letter, saying it cannot approve Eton’s application for its methanol poisoning treatment in its current form.
How did the European markets perform?
- European shares rose to a record high on Friday as British-exposed financial stocks gained following a hawkish comment from a Bank of England official, with the prospects of increased U.S. fiscal spending boosting market sentiment.
- The pan-European STOXX 600 index rose 0.6% to a record high of 448.98 points and added 1% this week. The Europe-only STOXX index and the European blue-chip index added about 0.7% each, trading just below multi-year highs.
- Bank stocks rose 0.4% to a 15-month high, tracking a rise in eurozone bond yields. British lenders, including HSBC, led the gains after a Bank of England policymaker suggested an earlier-than-signaled hike in lending rates.
- Gains in British-exposed stocks supported the insurance and financial services sectors, which were the best performing sectors for the day.
- Optimism over economic growth has supported European stocks this year, with several economies loosening their COVID-19 curbs against the backdrop of a steady vaccination campaign. Data showed economic sentiment improved by more than expected to a three-year high in May, with the strongest gains in services, retail, and among consumers as governments eased pandemic restrictions.
- Markets also took comfort in the prospect of more liquidity, after a report said U.S. President Joe Biden will seek $6 trillion in federal spending for 2022. Biden is expected to unveil his first full budget later in the day.
- In individual stocks, Spanish bank Sabadell fell more than 6.5% even after it outlined plans for more cost cuts to improve profitability. French planemaker Airbus extended solid gains from Thursday, hitting a near 15-month high after it outlined plans to nearly double output.
How did Asian markets perform?
Asian markets finished mixed as of the most recent closing prices. The Shanghai Composite gained 1.14%, while the Nikkei 225 led the Hang Seng lower. They fell 2.07% and 0.27% respectively.
Commodities and other assets
- Oil futures fell Friday while remaining up for the week and month. West Texas Intermediate crude for July delivery fell 53 cents, or 0.8%, to settle at $66.32 a barrel on the New York Mercantile Exchange.
- The yield on the 10-year Treasury note traded 2 basis points lower at 1.584%. Yields and bond prices move in opposite directions.
- Gold futures ended May nearly 8% higher. August gold, the most active contract, rose $6.80, or 0.4%, to settle at $1,905.30 an ounce.
- The dollar gave up gains early on Friday as traders tidied positions ahead of month-end and a holiday weekend after seeing new economic data confirm expectations about U.S. inflation and the recovery from the COVID-19 pandemic.
- The dollar index of major currencies rose as much as 0.4% during the day in a sharp rebound from 4-1/2 month lows plumbed on Tuesday before it fell back to flat for the day and the week at 89.99.
- The euro was up a bare 0.05% at $1.22 on Friday afternoon, compared with a four-month high of $1.2266 earlier in the week.
- The British pound was flat at $1.4199, continuing its recent struggle to stay above $1.42.
- In cryptocurrencies, bitcoin was down about 6% at $36,174 in the morning in New York, while ether was down 8% at around $2,510.
- Market holidays in the United States and Britain on Monday.
- Watch out for our Monday Weekly Market Outlook that provides insights on what’s coming up that week.