U.S. equities bounced back from yesterday’s European politically-fueled losses to finish solidly higher, as the concerns that drove the uneasiness appeared to calm somewhat. Treasury yields rallied, snapping back from a recent plunge to lend support to financials, and the U.S. dollar retreated from its recent run. In economic news, Q1 GDP growth was unexpectedly revised lower and ADP’s employment report missed forecasts, while the afternoon release of the Fed’s Beige Book indicated continued economic expansion. Crude oil prices recovered from its current downdraft on a bullish OPEC report and gold was higher.

The Dow Jones Industrial Average (DJIA) rose 306 points (1.3%) to 24,668, the S&P 500 Index increased 34 points (1.3%) to 2,724, and the NASDAQ Composite moved 66 points (0.9%) higher to 7,462. In moderate volume, 854 million shares were traded on the NYSE and 2.0 billion shares changed hands on the NASDAQ. WTI crude oil traded $1.48 higher to $68.21 per barrel and wholesale gasoline was up $0.03 at $2.17 per gallon. Elsewhere, the Bloomberg gold spot price was $3.38 higher at $1,302.15 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.7% to 94.16.

The second look (of three) at Q1 Gross Domestic Product, the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 2.2%, down slightly from the first release’s 2.3% gain, with the Bloomberg forecast calling for an unrevised figure. Q4 GDP grew by an unrevised 2.9% rate. Personal consumption was revised to a 1.0% rise for Q1, from the preliminary 1.1% gain, and versus the expected adjustment to a 1.2% increase. Q4 personal consumption was unrevised at a 4.0% rise.

On inflation, the GDP Price Index was revised to a 1.9% increase, versus expectations of an unrevised 2.0% gain, while the core PCE Index, which excludes food and energy, was adjusted to a 2.3% gain, from the forecasted unrevised 2.5% increase.

The ADP Employment Change Report showed private sector payrolls rose by 178,000 jobs in May, below forecasts of a 190,000 gain, while April’s increase of 204,000 jobs was revised to a 163,000 rise. Today’s ADP data, which does not include government hiring and firing, comes ahead of Friday’s broader May nonfarm payroll report, expected to show headline and private sector jobs grew by 190,000.  The unemployment rate is forecasted to remain at 3.9% and average hourly earnings are projected to rise 0.2% month-over-month (m/m).

The MBA Mortgage Application Index declined 2.9% last week, following the prior week’s 2.6% decrease. The downturn came as a 4.7% drop in the Refinance Index was met with a 1.9% fall for the Purchase Index. The average 30-year mortgage rate declined 2 basis points (bps) to 4.84%.

The advance goods trade balance unexpectedly shrunk to a deficit of $68.2 billion in April, from the upwardly revised $68.6 billion in March, and versus expectations of a $71.0 billion shortfall.

Preliminary wholesale inventories came in flat m/m in April, versus forecasts of a 0.5% gain, and following March’s downwardly revised 0.2% increase.

At 2:00 p.m. ET, the Fed delivered its Beige Book report, an anecdotal look at business activity across the nation used as a preparation tool for the Fed’s next two-day monetary policy meeting set to conclude on June 13th. The report indicated that the 12 Federal Reserve Districts in late April to early May reported a moderate pace of expansion in economic activity. As well, the report showed that even though companies continue to report shortages of skilled workers, “wage increases remained modest” for most of the Districts. In addition, while the report noted that manufacturing kicked into higher gear, with most Districts reporting increases in activity and a moderate rise in the prices for goods and services, it also indicated concerns over international trade policy.

Treasuries were lower, as the yield on the 2-year note jumped 9 bps to 2.41%, the yield on the 10-year note rose 7 bps to 2.84%, and the 30-year bond rate gained 3 bps to 3.01%.

Treasury yields rebounded from a recent drop that took the 10-year note well below the 3.00% mark, while the U.S. dollar trimmed a rally as of late.

Schwab Center for Financial Research – Market Analysis Group

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