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Market Snapshot: Stocks close sharply higher after inflation data; Dow snaps longest weekly losing streak since 1932

U.S. stocks rose Friday after the Federal Reserve’s preferred measure of inflation for April proved 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,
+0.98%

gained almost 364 points, or 1.1%, to trade at a nearly 33,001.

The S&P 500
SPX,
+1.67%

rose 73 points, or 1.8%, to about 4,131.

The Nasdaq Composite
COMP,
+2.49%

jumped nearly 300 points, or 2.6%, to about 12,041.

Stocks rallied 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?

Stocks are on pace to end the week on an upbeat note after being battered over the past couple months.

The market is “giving a sigh of relief,” said Tim Courtney, chief investment officer of Exencial Wealth Advisors, in a phone interview Friday. It’s “seeing the light at the end of the tunnel on the inflation story.”

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 in the past year, 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.

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

Other economic data show 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%.

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

All three major U.S. stock benchmarks are heading for gains this week following some relief over the minutes of the Fed’s early May meeting, released Wednesday, 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.

Still, 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. As
we have noted repeatedly, 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.

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

What companies are in focus?

Retailers were also in focus Friday, but the news wasn’t so positive. Big Lots Inc. BIG shares sank almost 10% after the big-box retailer swung to a surprise loss and sales miss. Stock in Gap Inc. GPS rose 1.8% 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,
+12.16%

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

Baidu Inc.’s
BIDU,
+1.17%

Hong Kong-listed shares
9888,
+14.26%

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 1.3%.

Marvell Technology Inc. shares 
MRVL,
+5.19%

were up 4.2% after the semiconductor group reported solid earnings results and slightly-better-than expected guidance.

Ulta Beauty Inc.
ULTA,
+10.29%

shares jumped around 10% 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,
-6.51%

fell 6.6% 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
TMUBMUSD10Y,
2.741%

 fell 1 basis point to 2.75%. Yields and Treasury prices move opposite each other.

The ICE Dollar Index 
DXY,
-0.05%
,
 which measures the greenback against major currencies, was up less than 0.1%.

Oil futures
CL00,
+0.31%

 rose, with West Texas Intermediate crude for July delivery
CLN22,
+0.31%

up 0.6% at around $114.72 a barrel. Gold 
GC00,
+0.17%

 for June delivery rose 0.1% to trade around $1,850 an ounce.

Bitcoin
BTCUSD,
-3.71%

was off 2.6% to $28,724.

In European equities, the Stoxx Europe 600 
SXXP,
+1.42%

 closed 1.4% higher and booked a 3% gain for the week. London’s FTSE 100
UKX,
+0.27%

ended 0.3% higher, for a weekly advance of 2.6%.

In Asia, the Shanghai Composite 
SHCOMP,
+0.23%

finished 0.2% higher Friday but slid 0.5% for the week. Hong Kong’s Hang Seng Index 
HSI,
+2.89%

 rose 2.9% Friday, but remained down 0.1% for the week. Japan’s Nikkei 225 index 
NIK,
+0.66%

ended 0.7% higher Friday, booking a weekly gain of 0.2%.

—Barbara Kollmeyer contributed to this report.

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