* Major U.S. stock indexes close higher; chips lead
* Real estate biggest gainer among S&P sectors; comm svcs
down
most
* Crude little dips; gold, gains; dollar inches higer;
bitcoin
down >6%
* U.S. 10-Year Treasury yield ~1.58%
May 28 - Welcome to the home for real-time coverage of
markets brought to you by Reuters reporters. You can share your
thoughts with us at markets.research@thomsonreuters.com
WALL ST EDGES HIGHER AS INFLATION FEARS DISSIPATE (1615
EDT/2015 GMT)
Stocks on Wall Street edged a bit higher on Friday after
investors took in stride a stronger reading than expected of
inflation, bidding up tech stocks while at the same time
latching onto defensive stocks.
U.S. consumer prices as measured by the personal consumption
expenditures (PCE) price index surged in April, but investors
looked through the Federal Reserve's favored gauge for inflation
and took comfort from the Fed view that the rise is transitory.
The three major indexes rose, but gains were limited to 0.2%
for the Dow and less than 0.1% for the Nasdaq and S&P 500.
Growth-oriented stocks rose 0.18% to outpace a 0.01% gain
in underpriced value shares, while small-cap stocks fell
.
The yield on 10-year U.S. Treasury notes fell to
about 1.58%, a sign the market isn't concerned the Fed will
change it's accommodative policy anytime soon.
Investors expect inflation to run above the Fed's long-term
goal of 2% for this month and June, with the deep summer months
providing the first comparisons beyond the worst of last year's
lockdowns when consumer prices plunged.
If inflation runs faster than expected then, a taper
announcement may follow and give stocks a scare. But until then
strong earnings growth will have to suffice for further gains.
Nvidia Corp and Salesforce.com Inc
provided the most upside to the S&P 500, while investors piled
into the defensive real estate and utilities
sectors.
The White House unveiled a $6 trillion budget proposal that
would boost spending on infrastructure, education and combating
climate change, arguing it makes fiscal sense to borrow now when
the cost is cheap.
(Herbert Lash)
*****
DON'T DISTRESS OVER STELLAR EARNINGS (1430 EDT/1830 GMT)
Even after a blowout first-quarter U.S. earnings season,
investors should not be thinking that this is "as good as it
gets," says Brian Belski, chief investment strategist at BMO
Capital Markets.
"The market narrative surrounding earnings has somehow
suddenly shifted to 'peak growth'" and what it may mean for the
market, he wrote in a note late Thursday.
"In our view, it is a bit absurd that stellar corporate
earnings have translated into distress so quickly," he said.
More than 87% of S&P 500 reports this earnings season have
surpassed analysts' expectations, which is the highest on record
based on Refinitiv data going back to 1994.
With results in from almost all of the S%P 500, earnings are
estimated to have increased more than 50% in the first quarter
from a year ago, according to Refinitiv.
That's up from a forecast for 24.2% growth at the start of
April.
But earnings growth and revisions are still increasing,
Belski noted, suggesting earnings are still likely to support
the market.
"Our work shows that S&P 500 price returns have held up
reasonably well, on average, following peaks in both trailing
12-month EPS growth and upward annual earnings revisions," he
wrote.
"As such, we remain bullish on U.S. stocks overall and
continue to view corporate earnings growth and revision trends
as tailwinds for the market through year end, not headwinds."
Belski sees the S&P 500 ending this year at 4,500.
(Caroline Valetkevitch)
*****
INVESTORS DIGEST Q1 EARNINGS WITH EYES ON INFLATION (1345
EDT/1745 GMT)
As part of the most recent American Association of
Individual Investors (AAII) sentiment survey [insert link], AAII
polled its members for their thoughts on the first-quarter
earnings season.
Nearly two out of five of respondents (37%) said that they
were "less than convinced" by Q1 results, citing inflation and
high prices as a major concern.
This compares to 23% of respondents who stated that they are
neutral about first-quarter earnings and don’t feel that
earnings pointed to any future gains.
About 18% of respondents said that they feel positive about
first-quarter earnings, given that so many companies beat
earnings estimates. Many within this group also said that they
expect to see moderate growth as a result of these earnings
numbers.
Here are a few quotes from investors on this matter:
"It was a good quarter. More companies beat their estimates
than not. The trend looks like it will continue."
"Many companies are beating estimates, but there has been a
limited stock price response."
(Terence Gabriel)
*****
BULLS LEANEST IN SEVEN MONTHS (1300 EDT/1700 GMT)
Optimism among individual investors over the short-term
direction of the U.S. stock market fell to a seven-month low in
the latest American Association of Individual Investors
Sentiment Survey. With this, both bearish and neutral sentiment
rose.
AAII reported that bullish sentiment, or expectations that
stock prices will advance over the next six months, slipped 0.6
percentage points to 36.4%. Bullish sentiment was last lower on
Oct. 28, 2020 (35.3%). Optimism is below its historical average
of 38.0% for the third time in 16 weeks.
Bearish, or expectations that stock prices will decline over
the next six months, edged up 0.2 percentage points to 26.4%.
Bearish sentiment remains below its historical average of 30.5%
for the 16th consecutive week.
Neutral sentiment, or expectations that stock prices will be
essentially flat over the next six months, increased 0.4
percentage points to 37.1%. Neutral sentiment was last higher on
Jan. 1, 2020 (40.9%). Neutral sentiment remains above its
historical average of 31.5% for the fifth consecutive week and
the sixth time this year.
With these changes, the bull-bear spread ticked down to +10
from +10.7 last week.
(Terence Gabriel)
*****
450 (1150 EDT/1550 GMT)
That's Europe's new magic number!
The pan-European STOXX 600 reached a new record high of 450
points in afternoon trading and has settled for the day just
below that bar on a 0.6% daily gain.
We're set for a fourth straight month of gains with a rise
of 2.7% so far in May.
Now, our latest poll shows that analysts currently expect
the STOXX 600 to end 2021 at 451 points so that wouldn't leave
much upside moving forward.
That being said, the macro picture for Europe seems to be
brightening by the day and today's data showed the economic
sentiment for the euro zone improving further in May.
Also expectations for Europe's Q2 earnings growth are above
90% so it's fair to say that there's a fair amount of optimism
out to feed the bulls.
Looking West to Wall Street, it's probably also encouraging
that markets didn't budge after it was announced that U.S.
consumer prices surged in April.
The narrative of a temporary inflation spike seems to have
found its way, rightly or not, well into mainstream.
(Julien Ponthus)
*****
TOO DARN HOT? FRIDAY DATA SUGGESTS THE SUMMER COULD BE A
SCORCHER (1115 EDT/1515 GMT)
Market participants sailed into the holiday weekend on
Friday on a raft of economic data which appeared to kick off the
summer with signs of an economy heating up.
The consumer spent at an accelerated pace in April
, rising as expected by 0.5%, despite a 13.1% plunge
in personal income, according to the Commerce
Department's Personal Consumption Expenditures (PCE) report.
The income plunge, while not as steep as the 14.1% drop
anticipated by economists, was the largest on record, and
largely due to the come-down from the previous month's stimulus
rush.
"Consumers paused to catch their breath in April after going
on a shopping spree in March," writes Gregory Daco, chief U.S.
economist at Oxford Economics (OE). "But don't be fooled...we
foresee real consumption growth around 9.5% this year – the
strongest performance since 1946."
Together, the income plunge and spending increase brought
the saving rate - the difference between outlays and disposable
income - down from the stratosphere, although it still remains
elevated compared with the historical average.
The saving rate is seen by many as a barometer of consumer
expectations. A worried consumer feeds the piggy bank.
This elevated savings, along with generous fiscal stimulus,
has added fuel to the demand fire as vaccine deployment and
lifting restrictions prompt consumers to re-engage economically.
In turn, materials producers, which largely curbed
operations at the onset of the pandemic, are struggling to come
back online. The resulting imbalance has sent commodity prices
higher.
The PCE price index rose 0.6% in April, running
hotter than the 0.5% consensus.
"It's a big monthly rise, but it was expected, and the Fed
has been telegraphing that we'll see inflation over the next
couple of months," says Peter Cardillo, chief market economist
at Spartan Capital Securities in New York. "But the Fed keeps
saying it will be transitory and to me that's a question mark."
The year-on-year core PCE index - which strips
out volatile food and energy prices and is the Fed's pet
inflation yardstick - jumped by 3.1% in April, blowing past the
central bank's average annual 2% inflation target.
It was the measures largest gain since 1992.
The graphic below shows how core PCE, along with most other
indicators, have shot above that target:
Other data released on Friday showed factory activity in the
midwest put the pedal to the medal this month, growing at its
fastest pace in nearly half a century.
The Chicago purchasing managers' index (PMI)
unexpectedly jumped to a reading of 75.2 according to MNI
Chicago versus the deceleration to 68 analysts expected.
"This startling reading - the highest since November 1973 -
appears inconsistent with the message from other regional
surveys and China’s Caixin PMI, which tends to lead the U.S.
surveys," writes Ian Shepherdson, chief economist at Pantheon
Macroeconomics.
The busy Commerce Department also released its advance take
on goods trade balance and wholesale inventories
for the month of April.
The gap between the value of goods imported to the U.S. and
American-made exports narrowed to $85.23 billion, suggesting an
overseas demand revival.
"Exports recorded a gain as external demand continued to
heal," says Oren Klachkin, lead U.S. economist at OE. "Shipping
bottlenecks and supply chain challenges will impede trade flows,
but shipments will ultimately be dictated by the strength of
recoveries at home and abroad."
Inventories in wholesalers' warehouses increased by 0.8%, in
a welcome sign that supply chains could be coming back online.
Finally, the University of Michigan offered its final take
on Consumer Sentiment for the outgoing month, which
ticked higher to 82.9, as expected.
The data put investors in a buying mood by late morning
trading.
All three major U.S. stock indexes were green, with chips
out front.
(Stephen Culp)
*****
WALL ST GAINS AFTER PCE SAYS PUNCH BOWL STAYS (1000 EDT/1400
GMT)
Wall Street sighed relief on Friday after the Federal
Reserve's favored gauge for inflation showed prices last month
rose a bit more than expected, but not high enough to change
course for policymakers' easy monetary stance.
PCE, excluding the volatile food and energy components, rose
0.7% last month, while in the 12 months through April the core
PCE price index jumped 3.1%. Both measures were higher than the
0.6% and 2.9% prints economists polled by Reuters had forecast.
The big cap FAANG stocks were at the top of the S&P 500
higher, but healthcare and the defensive real estate
and utilities added more upside.
The Russell 1000 Growth index outpaced its value
counterpart.
Advancing shares outnumbered declining shares by about 2:1
on both the Nasdaq and the New York Stock Exchange.
The yield on 10-year U.S. Treasury notes fell
below 1.6 %, a sign the market wasn't too concerned that the Fed
would change policy.
The White House will unveil President Joe Biden's budget for
trillions of dollars in spending on infrastructure, education
and other initiatives on Friday, but the plan is unlikely to
sway Republicans who want to tamp down U.S. government spending.
(Herbert Lash)
AFTER DATA, S&P 500 FUTURES POINT TO HIGHER OPEN (0915
EDT/1315 GMT)
Consumer prices as measured by the personal consumption
expenditures (PCE) price index, the Federal Reserve's preferred
inflation gauge, rose a bit more than economists expected on
Friday but suggested a risk-on trade remains in favor.
U.S. 10-year Treasury yield is holding around
the 1.61% level.
Equity futures are higher, with the Dow e-mini
Nasdaq 100 and S&P 500 e-mini all indicating
equities were poised to rise at the open. Futures briefly added
to gains following the release of the economic data.
Volume is expected to sharply taper off heading into the
extended Memorial Day holiday weekend, which could lead to some
exaggerated price moves.
Below is your premarket snapshot:
(Herbert Lash)
*****
FOR FRIDAY'S LIVE MARKETS' POSTS PRIOR TO 0900 EDT/1300 GMT
- CLICK HERE:
(Terence Gabriel is a Reuters market analyst. The views
expressed are his own)