Market Snapshot: S&P 500 books best week since February as investors digest fresh inflation data

How did major benchmarks do?

• The Dow Jones Industrial Average DJIA, +0.69% rose 237.02 points, or 0.7%, to 34,433.84 That compares with the blue-chip’s May 7 record of 34,777.76.
• The S&P 500 SPX, +0.33% advanced 14.21 points, or 0.3%, to a record close of 4280.70.
• The Nasdaq Composite Index COMP, -0.06% slipped 9.32 points, or less than 0.1%, to 14,360,39.

On Thursday, the Dow ended 322.58 points higher, up 1%, at 34,196.82. The S&P 500 advanced 24.65 points, or 0.6%, to 4,266.49 in what was then a record close, while the Nasdaq rose 0.7%, logging its 17th record close of 2021.

For the week, the Dow advanced 3.4%, marking its best weekly rise since March 12. The S&P 500 rose 2.7%, its largest weekly gain since Feb. 5, while the Nasdaq climbed 2.4%, scoring its biggest weekly advance since April 9, FactSet data show.

As for the stock performance of smaller companies, the Russell 2000 index RUT, +0.03% booked a 4.3% gain this week, its biggest weekly jump since March 12.

What drove the market?

Stocks mostly rose on Friday, booking gains for the week for the major U.S. indexes, as a key reading of inflation was interpreted by some as easing concerns about out-of-control price rises.

The U.S. core PCE price index, the Federal Reserve’s favored inflation gauge that strips out energy and food, rose 3.4% in the May year, the biggest increase since 1992. The overall PCE price index rose 3.9% for the year, the largest increase since August 2008. 

However, the month-to-month increase for core inflation of 0.5% in May and 0.4% for the headline index were less than forecast and followed bigger monthly readings for April.

“I think 3.4% year over year given what happened” in the throes of the pandemic is “actually pretty light,” said Brad Neuman, director of market strategy at Alger, in a phone interview, referring to the 12-month jump in the core PCE index.

PCE data is considered a broader measure of inflation than the Labor Department’s consumer-price index as it reflects changes in consumer behavior and has a wider scope. The latest PCE readings support the Fed’s position that inflation is transitory and should bolster risk assets such as equities, said Anu Gaggar, senior global investment analyst for Commonwealth Financial Network, in emailed comments.

“Today’s inflation data should calm some nerves about runaway inflation,” said Ryan Detrick, Chief Market Strategist for LPL Financial, in an emailed statement Friday. “The PCE is the Fed’s favorite measure of inflation, and it very well could be near a peak in inflation, which should help the Fed keep it’s dovish policy stance.”

Meanwhile, U.S. consumer spending showed no increase May and consumer incomes declined 2% from April to May. Economists had expected income to fall 2.7%, while spending was expected to rise 0.4%.

See: Will Fed tapering concerns derail the rising stock market? ‘Investors should look past it,’ says one strategist.

U.S. stocks have fully recovered, and then some, from the swoon that followed last week’s Federal Reserve policy meeting, with the S&P 500 posting its best week since February.

“The market does seem happier this week,” said Sandi Bragar, managing director in planning, strategy and research at wealth manager Aspiriant, in a phone interview Friday.

U.S. equities were bolstered Thursday by the agreement in Washington on a roughly $1 trillion infrastructure plan, which includes around $579 billion in new spending on roads, bridges, rail and other physical infrastructure, analysts said, though President Joe Biden and congressional Democrats have signaled they will push for additional spending on education, child care and clean energy in a separate package.

Read: Infrastructure and the markets — here’s what the $1 trillion means

As part of its infrastructure bet, Alger owns shares of Bentley Systems, a provider of software used by civil engineers, according to Neuman. He said the firm has sought some cyclical exposure for its portfolio to benefit from the economic reopening, but expresses that through growth stocks.

Value plays outperformed growth Friday, with the 0.7% gain produced by the iShares S&P 500 Value ETF IVE beating the less than 0.1% rise for the iShares S&P 500 Growth ETF IVW.

In bank sector news, the Fed, after Thursday’s close, announced that temporary limits on dividend payments and share buybacks on the nation’s largest banks can end after June 30. Bank stocks such as JPMorgan, Bank of America Corp. and Citigroup Inc. finished higher Friday.

See: Fed’s stress test shows big banks can withstand global recession, clearing way for payouts, share buybacks to resume

In other U.S. economic data, consumer sentiment remains at subdued levels.

The University of Michigan’s consumer-sentiment index reading for June U.S. slipped in the second half of June. The reading was 85.5 in June, down from the mid-month flash estimate of 86.4 but above the 82.9 reading registered in May. Economists expected the gauge to rise to 86.5 from a reading of 86.4 in May.

“Consumers felt a bit more optimistic in June compared to last month despite navigating an economy with elevated prices and a slower-than-expected jobs recovery,” wrote Oxford Economics economists Mahir Rasheed and Greg Daco, in a Friday report.

Which companies were in focus?

• Shares of Dow component Nike Inc. NKE, +15.53% soared 15.5%, after the company late Thursday topped Wall Street revenue estimates by more than $1 billion, a turnabout from the year-ago quarter when sales were pummeled by the COVID-19 pandemic.
• Shares of Virgin Galactic Holdings Inc. SPCE, +38.87% soared almost 39% after the company said it received approval from the Federal Aviation Administration to fly passengers into space.
• BlackBerry Ltd. BB, -4.42% shares fell more than 4% after the company, a popular meme stock, reported a narrower-than-expected adjusted quarterly loss and sales that beat expectations late Thursday.
• Shares of big banks, including Bank of America Corp. BAC, +1.93%, JP Morgan Chase & Co. JPM, +1.01% and Citigroup Inc. C, +0.32%, rose after the Fed stress tests. Shares of B.ofA. climbed 1.9%, Citi shares edged up 0.3% and JPMorgan’s stock closed 1% higher.
• Shares of CarMax Inc. KMX, +6.67% rose 6.7% after reporting results early Friday that blew past Wall Street forecasts, boosted by surging demand for used cars.

How did other assets fare?

• The yield on the 10-year Treasury note TMUBMUSD10Y rose about 5 basis points to settle at 1.535% Friday, snapping a five week losing streak.
• The ICE U.S. Dollar Index DXY, a measure of the currency against a basket of six major rivals, was down less than 0.1%.
• Oil futures rose, with the U.S. crude benchmark CL00 settling 0.1% higher at $74.05 a barrel in a fifth straight week of gains. Gold futures GC00 ended higher, rising nearly 0.1% to settle at $1,777.80 an ounce.
• In European equities, the pan-Continental Stoxx 600 SXXP closed 0.1% higher, bringing weekly gains to 1.2%. The London’s FTSE 100 rose 0.4% for a weekly gain of 1.7%.
• In Asia, the Shanghai Composite SHCOMP rose 1.2% and Japan’s Nikkei 225 NIK climbed 0.7%, while Hong Kong’s Hang Seng Index HSI rose 1.4%.

—William Watts contributed to this report.