Last Updated 4:30PM EST
The Dow Jones Industrial Average (DJIA) finished the trading session up 1.76%, while the S&P 500 (SPX) inched 2.47% higher. Meanwhile, the Nasdaq 100 (NDX) outperformed, climbing 3.3%.
Today’s rally can be attributable to the relatively positive key economic data that was released earlier, which suggests that inflation may have peaked and may be slowing down.
However, it’s important to keep in mind that inflation data is a lagging indicator, and energy prices remain volatile. Indeed, the price of crude oil has increased this past week by almost 3% while natural gas finished the week almost 8% higher.
Ulta Beauty (ULTA) had a strong trading session, as shares closed 12.47% higher following its solid earnings report. In addition, Gap (GPS) stock made a stellar comeback following a reduced profit projection. Shares had initially opened the day roughly 14% lower before finishing the session 4.32% higher.
Macy’s (M), Dollar Tree (DLTR), and Dollar General (DG) continued the momentum from Thursday’s session into Friday, closing slightly higher on top of the previous day’s soaring prices.
The strong upward moves in retail stocks this week suggest that investors might have been too pessimistic about the sector going into the week.
Consumer Spending Continues to Grow Faster than Personal Income
Last Updated 3:20PM EST
On Friday, the U.S. Department of Commerce released its Real Personal Consumption report. This data measures the change in personal consumption for goods and services on a month-over-month basis, adjusted for inflation. Real Personal Consumption accelerated to 0.7% compared to 0.5% in the previous month.
Similarly, the Bureau of Economic Analysis (BEA) released its Personal Spending report, which measures the inflation-adjusted change in all spending by consumers. This number came in at 0.9% month-over-month compared to the expected 0.7%. However, it decreased from the previous reading of 1.4%.
In addition, the BEA also released data on the change in personal income, which was an increase of 0.4% versus expectations of 0.5%.
Together, these numbers suggest that consumer demand continues to be stronger than expected, meaning that consumers are still willing to spend. However, spending is increasing at a rate that is faster than the increase in personal income.
As a result, this raises a very important question for investors: is this consumer strength sustainable? The data suggests that it might not be sustainable because consumers can’t increase their spending at a rate that is higher than their income growth forever.
Therefore, the spending will have to cool down eventually, which could probably lead to a slowdown in inflation.
More Signs that the Housing Market is Cooling Down
Last Updated 12:15PM EST
The housing market has been on fire for years, making it difficult for first-time homebuyers to get a foothold in real estate. However, it appears that the days of bidding wars may be coming to an end.
According to Redfin (RDFN), nearly one in five home sellers have dropped their prices during the four-week period ending on May 22. This is the highest reading since October 2019. It’s no secret that rising mortgage rates have impacted the affordability of homes due to the higher monthly payments.
There are a few leading indicators of home buying activity. To begin with, Google searches for the term “homes for sale” decreased 13% year-over-year. In addition, year-to-date touring activity plunged 29% from the comparable period.
Nevertheless, it would likely take a few months for home prices to begin falling if these trends continue. Currently, the median home sale price is $400,000, which is up 16% year-over-year.
It is important to note, though, that pending home sales have been declining for months during a period of increasing housing inventory. Therefore, the percentage of home sellers cutting their prices may continue to increase, going forward.
Core PCE Price Index Report in Line with Expectations
Last Updated 10:00AM EST
On Friday, the Bureau of Economic Analysis released its Core PCE Price Index report, which measures the changes in the price of goods and services, excluding food and energy. Both the month-over-month and year-over-year numbers came in as expected at 0.3% and 4.9%, respectively.
The monthly figure was flat compared to last month’s reading but still lower than the 0.5% peak from February’s report. On the other hand, the year-over-year number decreased from last month’s reading of 5.2%.
When looking at the PCE Price Index, which adds back food and energy, the month-over-month and year-over-year numbers came in at 0.2% and 6.3%, respectively. The yearly figure declined from the 6.6% reported last month. However, the monthly figure was down substantially from the 0.9% witnessed in April.
For now, it appears that inflation may have, in fact, peaked. If this trend continues going forward, the Federal Reserve may not have to be as hawkish as the market thinks. Nevertheless, inflation is still running hot, and it might take a while to return to the 2% target that the Federal Reserve has set.
Stock Market Today: Most Important Economic and Financial Events of Friday, May 27
Stock futures moved higher in the early hours of Friday after a positive day of a market rally, as investors sought to maintain the euphoria sparked by strong retail earnings on Thursday.
Futures on the Dow Jones Industrial Average (DJIA) scraped above the flatline by 0.09%, while those on the S&P 500 (SPX) inched 0.23% higher, as of 4.46 a.m. EST, Friday. Meanwhile, the Nasdaq 100 (NDX) futures moved 0.35% higher.
The downward movement came despite better-than-expected aftermarket earnings of Ulta Beauty (ULTA) that led to its shares gaining about 7% in the extended trading session Thursday. This gain was overshadowed by Gap’s (GPS) loss of 13% following a reduced profit projection.
Thursday’s regular trading session saw the Dow rising for a fifth consecutive trading day, gaining 1.61%. The S&P 500 ended the day 1.99% higher and the Nasdaq 100 rose 2.79% at the end of the session.
Positive earnings reports from Macy’s (M), Dollar Tree (DLTR), and Dollar General (DG) led Thursday’s rally, putting the major indexes on track to end the week in green.
This apart, key economic data, including personal income, consumer spending, and core personal consumption expenditures, are set to be released on Friday, giving us a better look at how industries across the economy are coping with inflation.
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