Markets Finish Off May Positively…..

U.S. equities finished the last trading day of May in the plus column, procuring solid weekly gains along the way, as investors head into the three-day Memorial Day holiday weekend. Information Technology issues led the way, with almost all the sectors higher on the day, save some slight weakness in Materials. Treasury yields were able to remain calm, nudging lower amid a rise in bond prices, despite further signs of inflation and as data appeared to keep optimism of economic recovery in play. Earnings reports from Dow member, Costco Wholesale, and Ulta Beauty came in above forecasts to add to the positive mood. On the economic front, personal income fell and spending rose, the final read on May consumer sentiment was revised slightly higher, and Chicago manufacturing activity posted the highest level since the 1970s. Elsewhere, the U.S. dollar regained some footing after falling to a four-month low, while gold ended higher in choppy trading and crude oil prices turned lower in muted action. Europe finished with widespread gains, while markets in Asia were mostly higher.

The Dow Jones Industrial Average rose 65 points (0.2%) to 34,529, the S&P 500 Index gained 3 points (0.1%) to 4,204 and the Nasdaq Composite increased 12 points (0.1%) to 13,749. In heavy volume, 1.1 billion shares were traded on the NYSE and 4.4 billion shares changed hands on the Nasdaq. WTI crude oil declined $0.53 to $66.32 per barrel. Elsewhere, the Bloomberg gold spot price rose $6.59 to $1,903.13 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—inched 0.1% higher to 90.03. Markets were higher for the week, as the DJIA advanced 0.9%, the S&P 500 gained 1.2%, and the Nasdaq Composite jumped 2.1%.

Personal income and spending roughly in line, but inflation up, consumer sentiment down m/m…..

Personal income fell 13.1% month-over-month (m/m) in April, versus the Bloomberg forecast of a 14.2% drop, following March’s downwardly-revised 20.9% jump. Personal spending increase 0.5%, matching estimates and compared to the prior month’s upwardly-adjusted 4.7% rise. The April savings rate as a percentage of disposable income was 14.9%.

The PCE Deflator increased 0.6% m/m, in line with expectations and March’s upwardly-adjusted increase. Compared to last year, the deflator was 3.6% higher, above estimates of a 3.5% rise and March’s upwardly-revised 2.4% gain. Excluding food and energy, the PCE Core Index grew 0.7% m/m, north of expectations of a 0.6% increase and March’s un-revised 0.4% rise. The index was 3.1% higher y/y, versus estimates of a 2.9% gain and March’s upwardly-adjusted 1.9% increase.

The May final University of Michigan Consumer Sentiment Index was revised slightly higher to 82.9, versus expectations to be revised to 83.0 from the preliminary reading of 82.8. The modest upward revision came as a downward adjustment to the current conditions portion of the survey was just outdone by a positive revision to the expectations component. However, the overall index was lower versus April’s 88.3 level, as both components were down m/m. The 1-year inflation forecast came in at 4.6%, up from April’s 3.4% rate, and the 5-10 year inflation forecast increased to 3.0% from the prior month’s 2.7% forecast.

The Chicago PMI surprisingly moved further north of the level depicting expansion (a reading above 50). The index rose to 75.2 in May from April’s 72.1, versus estimates calling for a decline to 68.0. The index hit the highest level since the early 1970s as growth in new orders and order backlogs both accelerated, while production continued to expand, but employment fell back into contraction territory. Inflation pressures remained as prices paid continued to expand but the pace slowed somewhat.

The advance goods-trade balance showed that the April deficit unexpectedly shrank, coming in at $85.2 billion, versus estimates calling for a match of March’s upwardly-adjusted shortfall of $92.0 billion.

Preliminary wholesale inventories rose 0.8% m/m for April, compared to expectations of a 0.7% gain, and versus March’s downwardly-revised 1.1% rise.

Treasuries ticked higher, as the yield on the 2-year note was little changed at 0.14%, while the yields on the 10-year note and the 30-year bond declined 2 basis points to 1.58% and 2.26%, respectively.

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