Stocks gained on Friday as investors considered new economic data on consumer spending, income and inflation alongside stronger-than-expected data reports from earlier this week.
The S&P 500 advanced to end higher for a third consecutive day and close out the week higher. The Dow added more than 50 points, led by a jump in shares of Salesforce (CRM). That stock increased after the company delivered a full-year profit forecast that topped Wall Street's expectations, underscoring continued expected strength in software spending even coming out of the pandemic. The Nasdaq also gained.
New government data on Friday showed personal income fell less than expected in April, but still pulled back after March's stimulus-fueled surge. Personal income fell by 13.1% in April over March compared to the 14.2% drop expected. This followed a 20.9% increase during the prior month, which had been buoyed by the distribution of $1,400 stimulus checks to most Americans.
Personal spending moderated by the expected margin, rising by just 0.5% in April month-on-month following March's upwardly revised 4.7% jump. Meanwhile, personal consumption expenditures rose by a greater-than-expected 3.6%, marking the biggest increase since 2008. Excluding food and energy prices, the PCE was up 3.1% over last year, topping estimates for a 2.9% rise but mostly reflecting so-called base effects as inflation bounces from last year's pandemic-depressed levels.
Heading into these reports, many of the key economic data reports this week have exceeded consensus estimates. New jobless claims fell more than expected to set a new pandemic-era low, Labor Department data on Thursday showed. And the Commerce Department's estimates-topping non-defense capital goods orders, excluding aircraft, for April suggested that business capital expenditures were picking up at a faster-than-expected clip.
Meanwhile, President Joe Biden on Friday unveiled a budget that would hike federal spending to $6 trillion for the coming fiscal year, with the increased spending also a source of further economic fuel.
Some strategists noted, however, that heading into the summer and second half of the year, investors may begin to see diminishing returns from expectations for a strong post-pandemic recovery, given that many signs of this rebound have already occurred and been priced into the market.
"I think one of the things that's happened over the course of the last couple of months is, you've had good economic data, yes, but expectations have caught up to that good economic data," Mike Hanson, Fisher Investments senior vice president of research, told Yahoo Finance. "The recovery in most places in the world – especially in the developed world, places like the United States – is mostly nearly done. There's still slack in the economy, but we've gone a good, long way. At some point, comparables for economic data are going to become difficult."
"You have this world where expectations have caught up and yet sentiment is also very high. To me what that says is, in the next six to 12 months, you're going to have to see a ratcheting down of expectations," he added. "When that happens it means cyclically, value stocks probably won't do quite as well as things like growth stocks, high quality."
But with investors still looking for signs of lasting inflation and potential overheating during the economic recovery, other strategists suggested traders should be prepared for some reactionary choppiness in the coming months.
“We’re seeing that rotational effect: growth to value, large-cap, small-cap,” Chad Oviatt, Huntington Private Bank director of investment management, told Yahoo Finance. “The relationships change day to day based on a lot of headline sensitivity it seems like, whether that's economic headlines or other headlines coming at us. And we think that’s probably a theme that continues for the rest of the year."
4:05 p.m. ET: Stocks come off session highs but still end in the green
Here's where stocks ended the session:
S&P 500 (^GSPC): +3.23 points (+0.08%) to 4,204.11
Nasdaq (^IXIC): +12.46 points (+0.09%) to 13,748.74
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2:40 p.m. ET: 'Tech stocks right now are priced very attractively': Strategist
Technology stocks, while lagging the broader market so far in 2021, outperformed during Friday's session. Some strategists suggested value and cyclical stocks would likely ultimately continue to be the main beneficiaries of the economic rebound this year. Others, however, suggested tech's underperformance so far in 2021 has created an attractive entry point for investors.
“We will see some volatility. But that being said, we do not believe tech should be affected in a negative way,” ERShares Chief Operating Officer Eva Ados told Yahoo Finance on Friday. “Nothing has changed when it comes to their growth. In fact, some of the tech stocks right now are priced very attractively.”
"Their margins are so high. That allows them to not only [absorb] costs associated with price increases, but also to pass along costs because in some cases they have inelastic demand," she added.
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1:21 p.m. ET: Stocks hold onto gains and head for weekly advance
The three major indexes held higher in intraday trading on Friday, led by the Nasdaq as technology stocks outperformed.
The information technology, real estate and healthcare sectors led the S&P 500's 0.3% rise, while materials, industrials and energy were in the red. Salesforce outperformed in the Dow following strong earnings and guidance, with the stock gaining more than 6% intraday. Meanwhile, Boeing shares gave back some of Thursday's gains to trade more than 1% lower.
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10:28 a.m. ET: AMC, other meme stocks extend rally on Friday as Reddit-fueled trading resurges
Shares of AMC (AMC) advanced by another 9% Friday morning, bringing its week-to-date gains to more than 160%, as social media interest in heavily shorted stocks resurged on Reddit over the past several sessions.
The stock was on track to post a fifth straight session of sharp increases. Gains this week have brought AMC's market capitalization to more than $12 billion. Investors on the subreddit WallStreetBets ignited yet another rally in the stock, with many of these traders buying shares to force short-sellers to cover their positions and thereby catalyze an even higher move in the stock prices.
Shares of other meme stocks including Bed Bath and Beyond (BBBY) and Nokia (NOK) also gained intraday on Friday.
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10:11 a.m. ET: Consumer sentiment firmed slightly at the end of May, but higher prices still weighed on optimism: U. Michigan
The university's consumer sentiment index came in at 82.9, or a tick above the 82.8 previously reported. This still marked a notable drop from April's print of 88.3, however.
"Consumer confidence remained largely unchanged at the reduced level recorded at mid-month," Richard Curtin, chief economist for the Surveys of Consumers, said in a statement. "It is hardly surprising that the resurgent strength of the economy produced more immediate gains in demand than supply, causing consumers to expect a surge in inflation. Record proportions of consumers reported higher prices across a wide range of discretionary purchases, including homes, vehicles, and household durables — the average change in May vastly exceeds all prior monthly changes."
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9:30 a.m. ET: Stocks open higher, heading for third straight day of gains
Here's where stocks were trading after market open on Friday:
S&P 500 (^GSPC): +15.29 points (+0.36%) to 4,216.17
8:56 a.m. ET: April's moderating consumer spending and soaring prices give off 'a faint whiff of stagflation': Economist
April's spending, income and prices data from the Bureau of Economic Analysis suggest greater-than-expected inflationary pressures are already starting to impact the market, according to some economists, even as many Fed officials maintain such pressures will be transitory.
Core personal consumption expenditures (PCE), which exclude volatile food and energy prices, rose by a greater than expected 0.7% in April over March, and by 3.1% in April over last year. Both prints exceeded estimates, with the year-over-year measure coming in at the highest since the 1990s.
"The combination of falling real consumption and soaring prices last month gives off a faint whiff of stagflation," Paul Ashworth, chief U.S. economist for Capital Economics, wrote in a note Friday. "Core PCE prices increased by 0.7% m/m in April which, together with the impact from base year effects, was enough to push the annual core PCE inflation rate up to 3.1%, which is a multi-decade high that leaves it well above the Fed's 2% target and even the alternative core CPI [consumer price index] inflation rate at 3.0%."
"As with the CPI measure, that surge in the core PCE last month largely reflects re-opening inflation, with the prices of components like hotel rooms, air fares and used motor vehicles all soaring," he added. "At the same time, the PCE measure - which is usually around 0.3% to 0.5% points below the CPI - is also being boosted by a structural rebound in its broader measure of medical care services. The latter is most definitely not transitory."
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8:36 a.m. ET: Personal income fell less than expected in April while spending moderated
Personal income in the U.S. declined by a smaller than expected margin in April over March, giving back some gains after a stimulus-fueled jump.
Data from the Bureau for Economic Analysis showed personal income was down 13.1% in April month-on-month for the biggest drop on record. However, this was still better than the 14.2% drop expected, according to Bloomberg consensus data. The moderation also came following a 20.9% surge in income in March, which was buoyed by stimulus checks as well as enhanced federal unemployment benefits.
"The decrease in personal income in April primarily reflected a decrease in government social benefit. Within government social benefits, 'other' social benefits decreased as economic impact payments made to individuals from the American Rescue Plan Act of 2021 continued, but at a lower level than in March," the BEA said in a statement. "Unemployment insurance also decreased, led by decreases in payments from the Pandemic Unemployment Compensation program."
Despite the drop in income, spending still grew month-on-month. Personal spending increased 0.5% to match the expected rate. This moderated from the upwardly revised 4.7% increase in spending March.
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7:14 a.m. ET Friday: Stock futures extend gains
Here's where markets were trading ahead of the opening bell Friday morning:
NEW YORK, NEW YORK - MAY 11: A family eats beside the New York Stock Exchange in lower Manhattan after global stocks fell as concerns mount that rising inflation will prompt central banks to tighten monetary policy on May 11, 2021 in New York City. By mid afternoon the tech-heavy Nasdaq Composite had lost 0.6% after falling 2.2% at its session low. (Photo by Spencer Platt/Getty Images) ·(Spencer Platt via Getty Images)