Week 21 in Brief
U.S. stocks closed sharply higher on Friday, with the major benchmarks booking weekly gains, after data showed U.S. households boosted spending for a fourth straight month, though they reached deeply into savings to do so. Meanwhile, the Federal Reserve’s preferred measure of inflation eased in April. The data, alongside some strong earnings, has pushed shares of retailers sharply higher.
How did the major indices perform?
- The Dow Jones Industrial Average gained 575.77 points, or 1.8%, to close at 33,212.96, rising for a sixth straight day in its longest winning streak since December 2021.
- The S&P 500 Index rose 100.40 points, or 2.5%, to finish at 4,158.24.
- The Nasdaq Composite jumped 390.48 points, or 3.3%, to end at 12,131.13.
- For the week, the Dow gained 6.2%, the S&P 500 gained 6.6% while the Nasdaq climbed 6.8%.
What drove the US market?
- Economic Data: A slew of earnings results and economic data has boosted optimism among investors in recent sessions, helping pull major indexes away from their lows of the year. A broad-based rally, with all 11 of the S&P 500’s groups rising, helped the index break a seven-week losing streak. The U.S. inflation rate, as measured by the personal-consumption expenditures 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. While gas prices subsequently rebounded, there were other hints that a surge in inflation might be abating. The rate of core PCE inflation, the Fed’s preferred measure, slowed over the past year to 4.9% from 5.2%, in a second straight monthly decline. The last time the core rate saw back-to-back declines was in the first few months of the pandemic in early 2020.
- Monetary Policy: Worries about high inflation moves by the Federal Reserve to increase interest rate continued to weigh on the market. Investors have grown concerned that interest rate hikes could tip the economy into a downturn. Many of the extended rate-hiking cycles in recent decades have eventually led to contractions, according to Deutsche Bank. This week, stocks kept rising after the Fed’s latest meeting minutes showed that central bank officials thought they would need to raise interest rates by a half-percentage point at each of the next two meetings. Major indexes built on those gains later in the week and then surged Friday, ending the week near their session highs.
- Quarterly reports: This week, investors weighed in favourably the most recent batch of quarterly results and guidance from retailers like Macy’s, Nordstrom, Dollar General and Dollar Tree. The companies largely exceeded Wall Street’s estimates, helping assuage concerns that the profit pressures reported recently by Walmart, Target, and Kohl’s were reverberating equally across all consumer-facing firms. And outside of retail, airlines including JetBlue and Southwest raised their sales guidance for the current quarter, suggesting demand remained strong for discretionary travel.
- Volatility: Despite Friday’s surge, analyst remain warry on whether Wall Street’s volatility may have merely ebbed for now.
Which US stocks were in focus Friday?
- Retailers were in focus Friday. Big Lots Inc shares sank 12.1% after the big-box retailer swung to a surprise loss and sales miss. Meanwhile, Gap Inc. rose 4.3% after the clothing retailer reported a wider-than-expected loss and disappointing forecast. Costco Wholesale raked in $1 billion more than expected in revenue in its latest quarter, but missed on same-store sales. Shares rose 1.2%.
- Dell Technologies shares jumped 12.9% after the computer equipment maker reported higher first-quarter sales and lower operating expenses. Meanwhile, Baidu Inc’s Hong Kong-listed shares surged around 14% after the Chinese search engine’s first-quarter results beat expectations and as several analysts raised their stock-price targets. U.S.-listed shares rose 2.1%.
- ULTA Beauty Inc. shares soared 12.5% after the beauty products retailer lifted its full-year sales and earnings guidance Thursday after better-than-expected first-quarter results.
How did the European markets perform?
- European shares marked their best week since mid-March, ending Friday on a strong note as upbeat U.S. data and easing bets about aggressive interest rate hikes lifted sentiment. The pan-European STOXX 600 index rose for a third straight session, closing up 1.5%, taking weekly gains to 3%. Germany’s DAX ended at an over one-month high, up 1.6%. But London’s blue-chip FTSE 100 underperformed on Friday as energy stocks tracked oil prices lower, and as utilities worried about a potential windfall tax. Overall, technology stocks led gains among sectors, up 3.3%, while industrials and luxury stocks were among the biggest boosts to the STOXX 600.
- European investors are watching for any updates from the European Central Bank, which is expected to begin its hiking cycle in July. Chief Christine Lagarde signaled rates, currently at -0.5%, will be at 0% or above by September. Meanwhile, worries about the Russia-Ukraine war further fueling energy prices, and concerns about demand from China amid COVID-19 curbs, have also weighed on stocks recently (Reuters).
How did Asian markets perform?
Asian, the Shanghai Composite closed 0.2% higher Friday but slid 0.5% for the week. Hong Kong’s Hang Seng Index rose 2.9% Friday, but remained down 0.1% for the week. Japan’s Nikkei 225 index ended 0.7% higher Friday, booking a weekly gain of 0.2%.
Bonds and Commodities
- Concerns about economic growth have lingered, driving government bond yields lower, off the highs hit earlier in May. The yield on the benchmark 10-year U.S. Treasury note dropped to 2.748% Friday and has fallen for three consecutive weeks. Yields and prices move in opposite directions.
- Oil prices rose, with Brent crude, the international benchmark, gaining 6.1% to $119.43 a barrel this week, the best stretch in more than a month.
- Gold for June delivery rose 0.2% to settle at $1,851.30 an ounce.
- The ICE Dollar Index, which measures the greenback against major currencies, was down about 0.2%
- In cryptocurrencies, Bitcoin fell 2% to close at $28,863.
- Investors can expect quarterly earnings from companies including Salesforce, HP, Chewy, GameStop, Broadcom, and Lululemon, among others as well as economic data such as PMI surveys and consumer confidence reports.
- U.S. markets are closed on Monday for the Memorial Day holiday.