Dow jumps 350 points as latest data shows US economy defying recession fears

Joseph Adinolfi and Steve Goldstein

The Dow gained 350 points on Friday, reversing some of its losses from a five-day streak as the latest US economic data provided healthy readings for US consumption and manufacturing.

Equities ignored signs of stronger-than-expected inflation in April, which pushed short-term Treasury yields higher as expectations rose for another Federal Reserve rate hike in June.

What’s going on

On Thursday, the Nasdaq Composite posted its biggest gain in three weeks thanks to a historic gain in shares of chip maker Nvidia Corp. Meanwhile, the Dow Jones Industrial Average finished in the red for the fifth straight session.

What drives the markets

A series of encouraging economic data from the US helped US stocks rise sharply on Friday as the blue-chip Dow recouped some of its losses earlier in the week, which were partly due to recession fears.

The PCE data also showed that consumer spending rebounded in April, rising 0.8%, its biggest increase in three months, beating expectations for a 0.5% increase as Americans bought more cars and spent more on services.

Durable goods data showed US industrial goods orders rose 1.1% in April. The increase was largely due to military spending, but business investment also increased sharply.

At the same time, the PCE price index showed that core inflation rose in April by 0.4%, ie more than economists expected by 0.3%. Core inflation removes volatile food and energy prices. The annual increase in prices rose to 4.4% from 4.2% in the previous month.

But investors were willing to overlook slightly higher-than-expected inflation due to signs the US economy looked solid. Updated GDP figures released earlier this week showed the US economy grew 1.3% in the first quarter, more solidly than previous estimates had suggested.

Short-term government bond yields rose on Friday on inflation data, with the 2-year BX:TMUBMUSD02Y yield up 8 basis points to 4.580%. According to the FedWatch CME tool, Fed futures traders now see a 54% chance of a June hike following Friday’s inflation data.

Rubeela Farooqi, chief US economist at High Frequency Economics, noted that early in the second quarter, inflation seemed to be headed “in the wrong direction.”

Stocks also continued to benefit from continued Thursday’s rise in tech stocks, which was fueled by Nvidia’s (NVDA) optimistic second-quarter sales projections driven by artificial intelligence.

Nvidia’s shares also jumped more than 24%, and the company added nearly $200 billion to its market capitalization, one of the biggest single-day gains in corporate America history.

On Friday, another microchip maker, Marvell Technology (MRVL), surged after it said artificial intelligence was driving growth.

Reports suggesting Congress was close to a deal to raise the US debt ceiling also boosted sentiment, although House Republicans had already left Washington ahead of the US Memorial Day holiday weekend.

While Treasury Secretary Janet Yellen says the US could run out of money as early as June 1, other projections estimate the federal government could have until mid-month.

“I think we can all breathe a sigh of relief by mid-June, although from time to time it will probably be an increasingly volatile market environment,” said Kristina Hooper, chief global market strategist at Invesco. “Once this drama is over, I think all eyes will turn back to central banks.”

— Joseph Adinolfi

Companies in the spotlight

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(END) Dow Jones Newswires

05-26-23 1049ET

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