U.S. equities pared early losses that came amid flared-up global trade and geopolitical uncertainties to finish with modest gains following this afternoon’s release of the minutes from the Fed’s latest monetary policy meeting. Treasury yields were lower, while the U.S. dollar continued its trek higher in the wake of some mixed economic data. In equity news, shares of Target dropped after posting mixed quarterly results and Dow member GE suffered after it offered a downbeat view of the gas turbine market. Meanwhile, crude oil prices were lower on the heels of some bearish oil inventory data and gold was modestly higher.

The Dow Jones Industrial Average (DJIA) rose 52 points (0.2%) to 24,887, the S&P 500 Index increased 9 points (0.3%) to 2,733, and the NASDAQ Composite gained 48 points (0.6%) to 7,426. In moderate volume, 811 million shares were traded on the NYSE and 2.0 billion shares changed hands on the NASDAQ. WTI crude oil traded $0.36 lower at $71.84 per barrel and wholesale gasoline was down $0.01 at $2.26 per gallon. Elsewhere, the Bloomberg gold spot price rose $2.27 to $1,293.41 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was up 0.4% at 94.02.

The preliminary Markit U.S. Manufacturing PMI Index showed expansion in output unexpectedly accelerated, ticking higher to 56.6 in May from April’s 56.5 figure, where the Bloomberg estimate called for it to remain. The preliminary Markit U.S. Services PMI Index showed growth for the key U.S. sector also came in stronger than expected this month, rising to 55.7 from April’s 54.6 figure, and versus forecasts calling for a slight rise to 55.0. Readings above 50 for both indexes denote expansion.

New home sales decreased 1.5% month-over-month (m/m) in April to an annual rate of 662,000 units, versus forecasts calling for 680,000 units and the downwardly-revised 672,000 unit pace in March. The median home price nudged 0.4% higher y/y at $312,400. New home inventory ticked higher to 5.4 months of supply at the current sales pace from 5.3 in March. Sales rose m/m in the Northeast and South, while were flat in the Midwest and dropped in the West. Sales were higher in all regions y/y. New home sales are based on contract signings instead of closings.

The Federal Reserve released the minutes from its monetary policy meeting earlier this month, where it kept its policy stance unchanged. The report showed what many market participants are forecasting—a rate hike likely coming in June, saying that most Committee members “judged that if incoming information broadly confirmed their economic outlook, it would likely soon be appropriate for the FOMC to take another step in removing policy accommodation.” The Committee also exhibited little concern about being behind the curve with regards to inflation, with the minutes showing only a few members that thought inflation would move “slightly” above its 2% target, while the majority indicated that a move above 2% “could be helpful in anchoring longer-run inflation expectations at a level consistent with that objective,” saying that the recent increase in prices are likely transitory.

In regards to trade with China, the report showed that there was some concern as it pertains to business confidence, and “it was noted that the potential for higher Chinese tariffs on key agricultural products could, in the longer run, hurt U.S. competitiveness.” The minutes also showed that the Committee discussed the recent flattening of the yield curve, with members split as to its reliability of a signal of future economic activity and if it indicated an increased risk of recession.

Treasuries were higher, as the yield on the 2-year note declined 3 bps to 2.53%, the yield on the 10-year note fell 6 bps to 3.01%, and the 30-year bond rate lost 4 bps to 3.17%.

Schwab Center for Financial Research – Market Analysis Group

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