Stocks End Higher, But Off Session High
4:11 pm Friday, May 28th, 2021
U.S. stocks climbed on Friday supported by a calm Treasury market and leadership from the information technology sector.
The early focus today centered on speculative trading activity, but that’s since cooled off, allowing market participants to refocus on today’s key storyline: inflation pressures persist but the Treasury market isn’t bothered. The 10-yr yield is down one basis point to 1.60% amid increased demand.
The inference remains that the Treasury market expects inflation pressures to be transitory, in-line with expectations from the Fed, which could keep a lid on long-term interest rates for the time being. The latter is particularly beneficial for the growth stocks and less so for the financial stocks.
Specifically, the Fed’s preferred inflation gauge in the PCE Price Index rose 0.6% m/m in April, leaving it up 3.6% yr/yr. The expected year-ahead inflation rate was a record 4.6% in the final May reading for the University of Michigan Index of Consumer Sentiment. Costco (COST) estimated that overall price inflation at the selling level is in the 2.5-3.5% range, or above expectations.
The tech sector has received additional support from a 6% gain in Salesforce (CRM) following its earnings report as well as strength in the semiconductor stocks. The Philadelphia Semiconductor Index is up 1.2%. Interestingly, Apple (AAPL) was downgraded to Sell from Neutral at New Street.
In the speculative department, AMC Entertainment (AMC) turned negative after being up as much as 37.5% today on top of yesterday’s 36% surge.
U.S. Treasuries ended the week and the month on a modestly higher note with longer tenors leading the way. The Friday session started on a flat note and the market saw some light selling after the release of today’s first batch of economic data, but the slim losses were reclaimed swiftly even though the Personal Income/Outlays report for April reflected recent inflationary concerns.
