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Market Snapshot: Dow industrials climb as inflation reading hits 13-year high

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U.S. stock indexes headed higher Friday midday, in the final trading session of the week and month, despite a report that pointed to inflation that is running at its highest annual rate in about 13 years.

U.S. financial markets will be closed on Monday in observance of the Memorial Day holiday and the bond market will close an hour earlier Friday at 2 p.m. Volumes on Friday are expected to be thin as a result.

How are stock benchmarks trading?
  • The Dow Jones Industrial Average was trading 124 points higher to reach 34,586, a gain of 0.4%
  • The S&P 500 index advanced 12 points, or 0.3%, at 4,212.
  • The Nasdaq Composite Index was up 66 points, or 0.5%, to reach about 13,806.

On Thursday, the Dow
DJIA,
+0.40%

closed up 141.59 points, or 0.41%, to 34,464.64; the S&P 500 index
SPX,
+0.40%

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
RUT,
-0.16%

closed up 1.1%, or 23.80 points, to reach 2,273.07.

Weekly and monthly statistics

The Dow was on pace for a weekly gain of 1.1%, and on track for a monthly rise of 2.1%, marking its fourth monthly gain in a row.

The S&P 500 was up 1.3% on the week thus far and aiming for a gain in May of 0.7%, also marking its fourth straight monthly advance.

The Nasdaq was set for a weekly gain of around 2,3% but a 1.3% decline in the month to date.

The Russell was headed for a weekly return of 2.3% and a monthly gain of less 0.02%, which would mark its eighth straight monthly gain and its longest such win streak since 1995, if can eke out a win.

What’s driving equity trading?

U.S. equity market investors are hoping to close out the week and head into June with major indexes near all-time highs, but first Wall Street must sort through the Federal Reserve’s preferred measure of inflation, the personal-consumption expenditure index.

The U.S.’s PCE inflation rate approached its highest level in nearly 13 years at 3.6%, higher than the 2.9% that economists’ surveyed by Dow Jones had forecast. That marks the highest level since 2008. On a month-over-month basis, PCE inflation rose 0.6% in April, while the core rate up rose 0.7%.

The core price index, which strips out volatile food and fuel prices, rose 3.1% in the year through April — marking the fastest pace since 1992.

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.

Inflation worries appear to be creeping into the psyche of American consumers. 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.

Read: ‘I am worried about day-to-day people,’ when it comes to rising inflation, warns investment manager

That said, economists expect sentiment to improve over the next few months as the recovery from COVID continues to get better.

“Looking ahead, attitudes will improve over the summer as wider vaccine eligibility, lifted activity restrictions, and an accelerating labor market recovery lifts sentiment back towards pre-pandemic levels,” wrote economists Mahir Rasheed and Greg Daco at Oxford Economics in a research note.

Fed policy makers are increasingly debating the timing of paring back easy-money measures implemented during the worst of the coronavirus pandemic, especially after an April report on job creation came in weaker than expected and readings of inflation, including mid-May’s consumer-price index report running hot, suggesting that the economy is overheating.

Dallas Fed President Robert Kaplan during an interview on CNBC on Thursday said that he is ready to start to talk about reducing the Fed’s $120 billion a month in asset purchases, citing excess in the real-estate market as one reason for a pullback in accommodation.

“At this stage as opposed to a year ago, these mortgage purchases for example might be having some unintended consequences and side effects, which I think we need to weight against their efficacy,” he told the business network, reiterating past comments that he has made.

“I think it would be wise sooner rather than later to begin gently taking our foot off the accelerator, so we can avoid and reduce the probability of having to apply the brakes down the road,” he said.

Investors also were watching for details on a $6 trillion budget proposal for the 2022 fiscal year expected to be released later Friday by President Biden’s administration, which could further support the economic rebound but also spur increased debt issuance. Detail of Biden’s budget plan is due later Friday.

In other 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.

Economists polled by the Wall Street Journal forecast decline to a 68 reading. Readings over 50 signal expansion.

Which companies are in focus?
  • Shares of Dow component Salesforce Inc.
    CRM,
    +5.97%

    were rising 6% after the enterprise software company reported better-than-expected first-quarter results late Thursday.
  • HP Inc.‘s stock
    HPQ,
    -8.08%

    was down nearly 9% after the company reported better-than-expected fiscal second-quarter results.
  • “Meme” stocks have been in focus lately, with shares of AMC Entertainment
    AMC,
    -4.00%
    ,
    surging more 119% so far this week and those for videogame retailer GameStop Corp.
    GME,
    -8.39%

    were up by about 44% over the period. On the session, shares of AMC were up 16% and GameStop’s were down 2.8%.
  • Shares of Boeing Co.
    BA,
    -1.79%

    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 was down 1.3%.
  • Shares of Eton Pharmaceuticals IncETON traded over 13% 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 his current form.
How are other assets faring?
  • The yield on the 10-year Treasury note TMUBMUSD10Y was around 1.60%, after the economic data. Yields and bond prices move in opposite directions.
  • The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was down 0.2%.
  • Oil futures traded higher, with the U.S. benchmark CL00 up 16 cents, or 0.2%, at $67.01 a barrel on the New York Mercantile Exchange, after rising to the highest front-month contract settlement since Oct. 29, 2018, according to Dow Jones Market Data.
  • Gold futures GC00 were down $1.50, or 0.1%, at $1,897 an ounce, but headed for a solid weekly gain.
  • The Stoxx Europe 600 index SXXP was trading up 0.5%, while London’s FTSE 100 UKX rose 0.3%.
  • The Shanghai Composite SHCOMP finished 0.2% lower, while Hong Kong’s Hang Seng Index HSI edged up 0.1%. Japan’s Nikkei 225 NIK rallied 2.1%.

: Johnson & Johnson COVID-19 vaccine authorized for use in the U.K.

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