Market Snapshot: S&P 500 books fresh record Friday, Dow snaps 2-week win streak as investors focus on inflation

The Nasdaq ended the week with a 1.9% gain, while the S&P 500 advanced 0.4% The Dow retreated 0.8% this week, snapping a 2-week win streak.

What drove the market?

With investors looking ahead to next week’s meeting of Federal Reserve policy makers, there were few clear catalysts for Friday’s trading, analysts said.

“There’s probably some chance, with the Fed meeting next week, of a bit more of a ‘let’s-see-what-they-have-to-say type of approach,” said Jim Baird, chief investment officer of Plante Moran Financial Advisors, in a phone interview.

The big question is whether policy makers will come forward with details about their thinking around an eventual tapering of the Fed’s bond-buying program, offering investors “more of a peek behind the curtain,” he said.

Several Fed officials have said the Fed should begin contemplating when it would be appropriate to discuss easing up on purchases. Investors also have been parsing details surrounding inflation.

“The question now is, is this the beginning of a 1970s-style spiraling of prices, in which case that would be very bad for the markets,” said Eric Diton, president of The Wealth Alliance, which oversees more than $1.2 billion of assets, in a phone interview. The market appears to think inflation spikes will be transient as the shortages of goods in the pandemic will prove temporary, according to Diton.

See: Is inflation eating up all the interest you’re earning on 10-year Treasury notes?

“We believe we are in the early stages of this global economic recovery,” he said. “There is a lot more demand coming while you have an accommodative Federal Reserve.”

Traders have been attempting to make sense of a Thursday rally in Treasurys that dragged down yields despite data showing the rate of U.S. consumer inflation over the past year escalated to a 13-year high of 5% from 4.2% in the prior month. That put it at the highest level since 2008, when the cost of oil hit a record $150 a barrel. Before that, the last time inflation was as high was in 1991.

The fall in Treasury yields provided a lift for equities, particularly shares of tech-related companies and others sensitive to interest rates.

Read: U.S. Treasury yields fall despite higher inflation: Here are some reasons why

In Washington, a bipartisan group of senators — five Democrats and five Republicans — are pushing an infrastructure plan with $579 billion in new spending as negotiators try to strike a nearly $1 trillion deal on President Joe Biden’s top priority, according to those briefed on the plan. Talks between Biden and Senate Republicans broke down earlier this week.

In U.S. economic data on Friday, the preliminary estimate of the index of consumer sentiment released Friday by the University of Michigan rose to 86.4 in June versus 82.9 in May. The figure came in above expectations from economists polled by The Wall Street Journal, who forecast the indicator to increase to 84.4.

The survey found inflation remained a top worry for consumers, though expectations for the U.S. inflation rate eased somewhat. In the next year, consumers expect prices to increase 4% compared with a 4.6% in May. For the next five years, inflation is expected to rise by 2.8%, down from 3% the prior month.

The small rise in the consumer-confidence index coupled with the slight drop in expected inflation suggests households might not be as overly worried about surging inflation, said Michael Pearce, senior U.S. economist at Capital Economics, in a note.

“But the details of the survey reveal widespread concern about surging home and auto prices, which could act as a brake on real consumption growth in the months ahead,” he wrote.

While Diton is optimistic about the economic recovery from the pandemic, he said valuations remain stretched and thinks a correction in the stock market would be “healthy.”

“There’s a lot of money sloshing around and very speculative behavior,” Diton said. “If we had a correction of the 10% garden variety that would be normal,” he added, but “I just don’t think we can make a case for an extended major bear market in this kind of climate.”

Peter van der Welle, a multi-asset strategist at Robeco, remains bullish on the U.S. market, though he sees room for bigger gains from European equities this year. “The upside risk for the market is you could see Keynesian animal spirits evolve,” he told MarketWatch Friday.

Which companies were in focus?

• Shares of Chewy Inc. CHWY, -5.81% fell 5.8% after the pet-products retailer surprised Wall Street late Thursday with a quarterly profit, but said it was facing labor shortages and supply problems that had led it to run out of some items.
• McDonald’s Corp. MCD, +1.00% said hackers stole some data from its systems in markets including the U.S., South Korea and Taiwan, the latest case of cybercriminals attacking a high-profile global company. Shares rose 1%.
• Meme stocks remained in focus, with shares of AMC Entertainment Holdings Inc. AMC, +15.39% jumping 15.4%, after falling 22.2% over the past two sessions. The stock and other meme stocks, took a hit Thursday after GameStop Corp.  GME, +5.88% disclosed that the Securities and Exchange Commission was looking into the “trading activity” around its stock and those of other companies. GameStop’s stock rose 5.9% after tumbling 27.2% on Thursday. 

What did other markets do?

• The yield on the 10-year Treasury note TMUBMUSD10Y, 1.452% slipped to 1.466%. Yields and bond prices move in opposite directions.
• The ICE U.S. Dollar Index DXY, +0.48%, a measure of the currency against a basket of six major rivals, rose 0.5%.
• Oil futures ended at a more than 2-year high, with the U.S. benchmark CL00, +0.70% up 62 cents, or 0.9%, at $70.91 a barrel. Gold futures GC00, -0.89% finished lower, falling 0.9%, to settle at $1,879.60 an ounce.
• European equities rose, with the pan-Continental Stoxx Europe 600 SXXP, +0.65% up almost 0.7% for a record close. London’s FTSE 100 UKX, +0.65% also rose almost 0.7%.
• In Asia, the Shanghai Composite SHCOMP, -0.58% fell 0.6%, while Hong Kong’s Hang Seng Index HSI, +0.36% gained 0.4% and Japan’s Nikkei 225 NIK, -0.03% saw a fractional loss.