The major U.S. stock indexes closed marginally higher on Friday as investors took the stronger-than-expected inflation reading in stride. This may have been an indication that investors have accepted the Fed’s notion that the current rise in inflation is “transitory”.
Investors had been eyeing key economic reports and comments from Fed officials for signs of runaway inflation and the possibility the central bank may begin to pull back on its massive stimulus measures all week, leading up to Friday’s personal consumption expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation.
Cash Market Performance
In the cash market on Friday, the benchmark S&P 500 Index settled at 4204.11, up 3.23 or +0.08%. The blue chip Dow Jones Industrial Average finished at 34529.45, up 64.81 or +0.19% and the tech-weighted NASDAQ Composite closed at 13748.74, up 12.46 or +0.09%.
Consumer prices, as measured by the personal consumption expenditures (PCE) price index excluding the volatile food and energy components, rose 0.7% in April, topping analysts’ 0.6% estimate and after a 0.4% increase in March.
In the 12 months through April, the core PCE price index surged 3.1%, smashing through the Fed’s 2% target, as the reopening economy unleashed pent-up demand. Economists polled by Reuters had forecast the core PCE price index surging 2.9% year-on-year.
A second report showed that despite nearly 10 million Americans being officially unemployed, consumer spending, which accounts for more than two-thirds of U.S. economic activity, rose 0.5% last month. Data for March was revised higher to show spending surging 4.7% instead of 4.2% as previously reported. The rise in spending was in line with expectations.
Another report showed personal income plunged 13.1% after surging 20.9% in March. With spending exceeding income, the saving rate dropped to a still-high 14.9% from 27.7% in March. Wages increased 1.0% for a second straight month.
Finally, a survey from the University of Michigan on Friday showed consumers’ one-year inflation expectations shot up to 4.6% in May from 3.4% in April, hurting household sentiment. Their five-year inflation expectations rose to 3.0% from 2.7% last month.
Stocks on the Move
Volume was well-below average on Friday as many of the market’s major players took to the sidelines ahead of Monday’s U.S. Memorial Day holiday.
Boeing Co fell after the Federal Aviation Administration confirmed the planemaker halted deliveries of its 787 Dreamliners, adding fresh delays for customers following a recent five-month delivery suspension due to production problems.
Salesforce shares popped more than 5% Friday to lead the gains in the Dow. The rally came after the software company’s first-quarter earnings beat Wall Street expectations on its top and bottom lines.
For a look at all of today’s economic events, check out our economic calendar.
This article was originally posted on FX Empire
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