The S&P 500 index rose to another record Friday, after investors pored over fresh U.S. economic data a day after an infrastructure spending agreement in Washington helped lift the broad market to all-time highs.
The Dow also finished higher, with the rise in Nike shares being a big driver of its gains. JPMorgan Chase & Co. also added to the benchmark’s performance, after the results of the Federal Reserve’s latest stress tests, released Thursday, showed banks have enough capital to withstand a severe global recession and so can resume paying dividends and buying back stock.
How did major benchmarks do?
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,
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%.
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.
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.
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?
How did other assets fare?
—William Watts contributed to this report.