Bulls Charge Again, but Fall Short on Erasing Weekly Losses…..

The U.S. equity markets capped off a volatile week with a second-straight day of solid gains, helping to somewhat recover from the heavy losses suffered earlier in the week. The snapback came despite a negative reaction to Dow member Walt Disney’s earnings report, a miss in April retail sales, and an unexpected decline in May consumer sentiment. Information Technology and other growth-related issues led the way after falling sharply in the first half of the week, as heating up inflation pressures exacerbated uncertainty surrounding the timing of the tapering of asset purchases from the Federal Reserve. In other earnings news, DoorDash and Airbnb finished higher in the wake of their respective releases. Treasuries gained modest ground, applying slight downside pressure on yields and the U.S. dollar fell, while gold and crude oil prices were higher. Overseas, markets in Europe and Asia closed out the wild week with widespread gains.

The Dow Jones Industrial Average rose 361 points (1.1%) to 34,382, the S&P 500 Index increased 61 points (1.5%) to 4,174, and the Nasdaq Composite rallied 305 points (2.3%) to 13,430. In moderate volume, 852 million shares were traded on the NYSE and 4.0 billion shares changed hands on the Nasdaq. WTI crude oil advanced $1.55 to $65.37 per barrel. Elsewhere, the Bloomberg gold spot price gained $16.58 to $1,843.30 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—fell 0.5% to 90.31. Markets were lower for the week, as the DJIA fell 1.1%, the S&P 500 shed 1.4%, and the Nasdaq Composite tumbled 2.3%.

Retail sales miss but prior month revised favorably, May read on consumer sentiment disappoints…..

Advance retail sales for April came in flat month-over-month (m/m), versus the Bloomberg consensus forecast of a 1.0% increase but March’s figure was adjusted higher to a 10.7% jump. Last month’s sales ex-autos declined 0.8% m/m, compared to expectations of a 0.6% increase and March’s figure was favorably revised to a 9.0% rise. Sales ex-autos and gas were also down 0.8% m/m, compared to estimates of a 0.3% gain, and March’s reading was adjusted higher to an 8.9% increase. The control group, a figure used to calculate GDP, fell 1.5% m/m, versus projections of a 0.2% decline and March’s upwardly adjusted 7.6% rise.

The May preliminary University of Michigan Consumer Sentiment Index surprisingly fell to 82.8 versus estimates of a slight increase to 90.0 from April’s 88.3 reading. The index unexpectedly declined as the current conditions and the expectations components of the index both surprisingly deteriorated. The report noted that consumer confidence in early May tumbled due to higher inflation—the highest expected year-ahead inflation rate as well as the highest long-term inflation rate in the past decade. Also, the release added that rising inflation also meant that real income expectations were the weakest in five years. The 1-year inflation forecast jumped to 4.6% from April’s 3.4% rate, and the 5-10 year inflation forecast rose to 3.1% from the prior month’s 2.7% level.

The Import Price Index rose 0.7% m/m for April, versus expectations of a 0.6% gain, and compared to March’s upwardly revised 1.4% increase. Versus last year, prices were up by 10.6%, compared to forecasts of a 10.2% increase and March’s upwardly adjusted 7.0% gain.

The Federal Reserve’s report on industrial production showed a 0.7% m/m gain in April, below estimates of a 0.9% increase, and versus March’s upwardly revised 2.4% rise. Manufacturing and mining output both nudged higher, but utilities production rose solidly. Capacity utilization increased to 74.9% versus forecasts calling for a gain to 75.0% from the prior month’s unrevised 74.4% rate. Capacity utilization is 4.7 percentage points below its long-run average.

Business inventories rose 0.3% m/m in March, matching forecasts following February’s upwardly revised 0.6% gain.

Treasuries were mostly higher, as the yield on the 2-year note was flat at 0.15%, while the yields on the 10-year note and the 30-year bond declined 3 basis points to 1.63% and 2.35%, respectively.

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