Key Factors Influencing the Market
Indexes Edge Lower After Hitting Records on Cooling Inflation
Bond Market Movements
Overview
U.S. stocks dipped on Friday, cooling off after the S&P 500 and Nasdaq 100 set record highs for four consecutive days. The rally this week was fueled by signs of cooling inflation, as reflected in the consumer price index (CPI) and producer price index (PPI) reports for May.
Market Performance
- S&P 500: Edged 0.1% lower, on track for its first day this week without setting an all-time high.
- Nasdaq Composite: Held steady around its record set the day before.
- Dow Jones Industrial Average: Fell 85 points, or 0.2%.
Key Factors Influencing the Market
- Cooling Inflation: The marked slowdown in inflation has boosted investor confidence. Fed President Loretta Mester welcomed the recent disinflation data and emphasized the importance of timely interest rate cuts.
- Federal Reserve Expectations: Investors anticipate that the Federal Reserve will begin cutting interest rates at its September FOMC meeting. The recent disinflation data supports these expectations, with the Fed signaling potential rate cuts later this year.
- Economic Data:
- University of Michigan Consumer Sentiment: Investors awaited preliminary data expected to show an improvement in consumer sentiment, with an anticipated reading of 71.5, up from 69.1.
- Job Market: Strong U.S. employment data has been a double-edged sword, suggesting economic resilience but potentially delaying rate cuts.
Sector Highlights
- Technology Stocks: Continued to perform well. Adobe jumped 14.4% after reporting stronger-than-expected profits. Nvidia rose 1.9%, benefiting from its leading position in artificial intelligence technology.
- Gold Stocks: Gold-related investments have been under pressure. Major ETFs like SPDR Gold Trust (GLD) and iShares Gold Trust (IAU) fell by 3.6%, reflecting a slump in gold prices following strong U.S. payroll data.
- Cruise Ship Operators: Saw significant losses. Norwegian Cruise Line dropped 7.5%, and Carnival fell 7.4% after Bank of America flagged softening price trends for trips.
- Home Furnishings: RH fell 18.1% due to a worse-than-expected quarterly loss, highlighting the challenging housing market exacerbated by high mortgage rates.
European Market Impact
European stocks experienced sharper declines due to political uncertainties:
- France's CAC 40: Fell 2.7%, marking its worst week in over two years, driven by concerns over far-right election gains.
- Germany's DAX: Lost 1.4%.
Bond Market Movements
U.S. Treasury yields fell, with the 10-year yield down to 4.21% from 4.25% late Thursday. This decline followed softer inflation data and a preliminary report indicating stagnant consumer sentiment for June.
Global Market Summary
- Europe: Significant losses due to election results in France and Germany.
- Asia: Mixed performance, with Japan’s Nikkei 225 rising 0.2% after the central bank maintained its interest rates.
Outlook
While U.S. stocks have set records recently, the market is now showing caution. Investors are closely monitoring economic indicators and Federal Reserve communications for signs of future rate cuts. The broader sentiment suggests optimism about disinflation, tempered by geopolitical and economic uncertainties.
This summary captures the key developments in the stock market as of today, highlighting the interplay between inflation data, Federal Reserve expectations, and sector-specific movements.