A Pause that Refreshes…..

U.S. equities finished solidly higher in the wake of a spate of losses that has brought about a six-week losing streak for the S&P 500. The moves came despite a flurry of headwinds, notably the Fed’s aggressive tightening campaign to combat persistently high inflation, reemphasized by Fed Chair Jerome Powell in a live-streamed interview with the Wall Street Journal. A mostly upbeat economic calendar appeared to aid sentiment, as retail sales, industrial production, capacity utilization, and business inventories all rose, but home-builder sentiment fell to its lowest level in nearly two years amid rising prices and mortgage rates. In equity news, Dow member Home Depot moved higher after posting strong earnings, while fellow Dow component Walmart lost ground after falling short on estimates, and the ongoing Twitter saga was in focus after Elon Musk said the deal remains on hold. Treasuries were lower, pushing yields higher, and the U.S. dollar cooled somewhat after a recent run-up to 20-year highs. Crude oil prices ended lower in choppy action, while gold was little changed. Europe was higher, and Asia finished in the green following some positive real-time COVID data.

The Dow Jones Industrial Average rose 431 points (1.3%) to 32,655, the S&P 500 Index increased 81 points (2.0%) to 4,089, and the Nasdaq Composite rallied 322 points (2.8%) to 11,985. In moderate volume, 4.9 billion shares of NYSE-listed stocks were traded, and 5.0 billion shares changed hands on the Nasdaq. WTI crude oil lost $1.80 to $112.40 per barrel. Elsewhere, the gold spot price traded $0.20 higher to $1,814.20 per ounce, and the Dollar Index was down 0.9% at 103.32.

Advance retail sales for April rose by 0.9% month-over-month (m/m), versus the Bloomberg consensus forecast of a 1.0% rise, and compared to March’s upwardly-adjusted 1.4% increase. Last month’s sales ex-autos grew 0.6% m/m, compared to expectations of a 0.4% gain and as March’s figure was revised higher to a 2.1% increase. Sales ex-autos and gas were up 1.0% m/m, above estimates of a 0.7% rise, while March’s reading was adjusted upward to a 1.2% increase. The control group, a figure used to calculate GDP, increased 1.0% m/m, versus projections of a 0.7% increase, and following March’s favorably-revised 1.1% rise.

The National Association of Home Builders (NAHB) Housing Market Index showed home-builder sentiment in May slid to 69 from April’s unrevised 77 level, its lowest level since June 2020 and below the consensus Bloomberg estimate of 75. The NAHB said, “The housing market is facing growing challenges. Building material costs are up 19% from a year ago, in less than three months mortgage rates have surged to a 12-year high, and based on current affordability conditions, less than 50% of new and existing home sales are affordable for a typical family.” The report added that entry-level and first-time home buyers are being hit hardest from the rapid rise in mortgage rates.

The Federal Reserve’s report on industrial production (chart) showed a 1.1% m/m increase in April, matching estimates, and compared to March’s unrevised 0.9% increase. The Fed said manufacturing output, mining production, and utilities all rose. Capacity utilization nudged higher to 79.0% from the prior month’s downwardly-adjusted 78.2% rate, versus forecasts of an increase to 78.6%.

Business inventories (chart) rose 2.0% m/m in March, above forecasts of a 1.9% increase, after February’s upwardly-revised increase of 1.8%.

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