A currency trader walks near the screens showing the foreign exchange rates at the foreign exchange dealing room in Seoul, South Korea, on May 28, 2021.
APStocks rose Friday, with markets seemingly ignoring inflation data that came in higher than what had earlier been estimated. President Joe Biden also released his budget proposal.
The Dow Jones Industrial Average gained 65 points, or 0.2%, while the S&P 500 and the Nasdaq Composite both advanced 0.1%. The 10-year Treasury yield, which usually rises and falls with inflation, fell to 1.58%. Technology stocks, the valuations of which are often most sensitive to changes in long-dated bond yields, were leading the market.
The core inflation reading came in at 3.1% year over year, against expectations of 2.9%. Fear of higher-than-expected inflation has recently caused stocks to fall on concerns that the Federal Reserve will lift interest rates. Investors, however, had largely priced in the inflation data. Still, going forward, many have noted that sustained inflation above expectations could force the Fed’s hand, which would pose a risk to the market and highflying stock valuations this year.
“The [personal consumption expenditures] is not market moving today,” writes Peter Boockvar, chief investment officer of Bleakley Advisory Group. “Inflation is here and it is widespread, it is not a debate.”
Plus, for now, investors are not afraid the Fed will act soon. “Bottom line, the market’s willing to believe the Fed, as far as the pick up in inflation being more transitory,” said Dan Eye, head of asset allocation and equity research at Fort Pitt Capital.
Biden’s $6 trillion budget proposal for 2022 includes the American Families Plan and the American Jobs Plan. The budget would be partially financed by a corporate tax hike to 28% from 21%, though many market analysts see the rate rising less than that. Congress is set to debate the particulars.
Investors had already anticipated the proposed amount of spend from the White House. “While the absolute number ($6 trillion) is huge, the market has become increasingly numb to the amounts of money being unleashed in Washington,” writes Chris Zaccarelli, chief investment officer for Independent Advisor Alliance.
In Asia, the Nikkei 225 index climbed 2.1%. China’s CSI 300 slipped 0.3%. Stocks were flat in Hong Kong, though shares of Chinese online retail giant JD.com’s logistics arm climbed 14% in a strong debut.
The Stoxx Europe 600 index rose 0.6%, closing at a fresh high on Friday.
U.S. markets will be closed on Monday for the Memorial Day holiday, which traditionally marks the start of summer vacations. The U.K. will also observe a holiday on that same day, with markets closed.
Among stocks in focus, discounter Costco Wholesale (ticker: COST) slipped 2.4% after reporting better-than-expected fiscal-third-quarter results late on Thursday.
AMC Entertainment Holdings (AMC) fell 1.5% after earlier rising more than 20%, capping another wild week for the stock. It is one of the more popular “meme stocks” that retail investors have bought up this year.
Salesforce.com (CRM) stock rose 5.4% after reporting earnings of $1.21 a share, beating forecasts for 88 cents a share, on sales of $5.96 billion, above expectations for $5.89 billion.
Ulta Beauty (ULTA) stock gained 5.2% after reporting a profit of $4.07 a share, beating forecasts for $1.95 a share, on sales of $1.9 billion, above expectations for $1.6 billion.
Plug Power (PLUG) stock gained 2.6% after BTIG Research initiated coverage with a Buy rating.
Teladoc Health (TDOC) stock gained 1.1% after Baird initiated coverage with a Neutral rating.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com
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May 29, 2021 at 04:22AM
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Why Are Stocks Higher Today? Inflation Is in Focus. - Barron's
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