Wall Street Shakes off Increasing Inflation and Closes Higher

On Friday, U.S. stocks rose, as investors brushed off higher-than-expected inflation numbers, as both the S&P 500 and Dow indexes completed their first weekly gain in the last three weeks. In April, there was a 0.7% increase in consumer prices, which are measured by the personal consumption expenditure (PCE) price index but don’t include volatile energy and food components. This was past the estimates of the analysts at 0.6% and after an increase in March by 0.4%. PCE is the preferred measure of inflation for the Federal Reserve. In the 12 months till April, there has been a 3.1% surge in the PCE, which is beyond the 2% target of the Fed, as pent-up demand was unleashed due to the reopening of the economy. 

Investors have kept a close eye on economic data and have monitored comments of the Federal Reserve officials for any indications of runaway inflation, as well as the possibility that the central bank may start tapering off its massive stimulus. Analysts said that the data was going to stay volatile because the inflation data was on the high side, but not that far ahead. The Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite all saw an increase of 0.19%, 0.08%, and 0.09%, respectively. 

As far as weekly gains are concerned, the Dow, the S&P 500, and the Nasdaq all increased by 0.94%, 1.17%, and 2.06%. As for the month, both the Dow and S&P 500 increased by 1.94% and 0.55%, respectively, while the Nasdaq fell by 1.53%. In recent days, Fed officials have reiterated that the central bank is not looking to make adjustments to its monetary support, but some have indicated that they may be ready to talk about scaling back their bond repurchase plan. On Thursday, Robert Kaplan, the President of the Federal Reserve Bank of Dallas, said that the labor market was a lot tighter than expectations.

Even though the data showed an increase in inflation, there was a fall in US Treasury yields and gave a boost to high-growth technology stocks. There was a 5.43% increase in Salesforce.com after it raised its full-year profit and revenue forecasts, as its cloud-based software saw an increase in demand during the pandemic. For several weeks, there have been increasing concerns about inflation that had weighed down growth names, a lot of which can be found in the tech-heavy Nasdaq. Plus, the index suffered from its first decline in a month since October. 

Even as the S&P 500 rebounded to a full 1% below its record high on May 7th, volatility has increased and the index reported its smallest increase in a month in May in the last four months. On Monday, the US stock market will remain closed for the Memorial Day holiday. Analysts warned about coming up with strong conclusions from the lightly traded market on Friday. US exchanges had a volume of 10.32 billion shares, as compared to the full session average of 10.52 billion in the last 20 days of trading. 

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