Market Comeback Continues…..

The rebound for the U.S. equity markets remained intact, as stocks were solidly higher, with the three major indexes on track to post the first weekly gains in seven weeks. The moves came despite uncertainty regarding the ultimate outcome of an aggressive Fed monetary policy tightening campaign to combat persisting inflation, which was solidified by the minutes to the Fed’s May meeting that were released yesterday. Meanwhile, the ongoing war in Ukraine and disruption from the COVID-induced lockdowns in China remained concerns. Earnings continued to trickle in, with NVIDIA topping forecasts but lowering its revenue outlook, Macy’s exceeding expectations and raising its guidance, while Dollar General and Dollar Tree both exceeded estimates and raised their guidance. In M&A news, Broadcom confirmed reports earlier this week by announcing an agreement to acquire VMware in a transaction valued at $61.0 billion. In economic news, jobless claims dipped, Q1 GDP was unexpectedly revised to a larger contraction than previously reported, pending home sales fell more than anticipated, and a read on regional manufacturing was better than expectations. Treasuries were mixed, and the U.S. dollar dipped, while crude oil prices rallied, and gold saw a modest increase. Europe finished with widespread gains, and Asia was mixed, with the Bank of Korea raising rates.

The Dow Jones Industrial Average rose 517 points (1.6%) to 32,637, the S&P 500 Index gained 79 points (2.0%) to 4,058, and the Nasdaq Composite rallied 306 points (2.7%) to 11,741. In moderate volume, 4.7 billion shares of NYSE-listed stocks were traded, and 4.6 billion shares changed hands on the Nasdaq. WTI crude oil jumped $3.76 to $114.09 per barrel. Elsewhere, the gold spot price was up $4.30 to $1,850.60 per ounce, and the Dollar Index lost 0.3% at 101.80.

Jobless claims dip, Q1 GDP revised lower, housing data continues to fall

Weekly initial jobless claims (chart) came in at a level of 210,000 for the week ended May 21, versus the Bloomberg estimate calling for 215,000, and versus the prior week’s unrevised 218,000 level. The four-week moving average rose by 7,250 to 206,750, and continuing claims for the week ended May 14 increased by 31,000 to 1,346,000, versus estimates of 1,310,000. The four-week moving average of continuing claims declined by 14,250 to 1,347,500.

The second look (of three) at Q1 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of contraction of 1.5%, revised from the first release’s 1.4% decline and versus estimates of an adjustment to a 1.3% decrease. Q4’s figure was unadjusted at a 6.9% increase. Personal consumption was revised to a 3.1% increase, versus expectations of an upward revision to a 2.8% rise from the initially-reported 2.7% pace of growth. Q4 consumption was unadjusted at a 2.5% gain. The Bureau of Economic Analysis said the downward revision reflected negative adjustments to private inventory investment and residential investment that were partly offset by an upward revision to consumer spending.

On inflation, the GDP Price Index was revised to an 8.1% rise, versus estimates of an unadjusted 8.0% increase, while the core PCE Index, which excludes food and energy, was adjusted lower to a 5.1% gain, versus expectations to be unrevised at a 5.2% rise.

Pending home sales dropped by 3.9% month-over-month (m/m) in April—the sixth-straight monthly drop—versus estimates of a 2.1% decline and following March’s negatively-revised 1.6% decrease. Sales tumbled 11.5% y/y, versus forecasts of an 7.6% decrease, on the heels of March’s negatively-adjusted 9.2% fall. Pending home sales reflect contract signings and are a gauge of the pipeline of existing home sales.

The May Kansas City Fed Manufacturing Activity Index decelerated by a slower rate than expected and remained comfortably at a level depicting expansion (a reading above zero). The index dipped to 23 from April’s unrevised 25 reading, compared to forecasts calling for a decline to 15.

Treasuries were mixed, and yields have been choppy as of late as markets anticipate tighter Fed monetary policy amid the backdrop of persistent inflation and signs of slowing economic growth. Yesterday’s release of the minutes from the early May Fed monetary policy meeting, in which they increased rates by 50 basis points (bps)—the first increase of that magnitude in over 20 years—showed a series of hikes of that size may be warranted to combat inflation.

©2022 Charles Schwab & Co., Inc. All rights reserved. Member SIPC.

Schwab Center for Financial Research (“SCFR”) is a division of Charles Schwab & Co., Inc. The information contained herein is obtained from third-party sources and believed to be reliable, but its accuracy or completeness is not guaranteed. This report is for informational purposes only and is not a solicitation, or a recommendation that any particular investor should purchase or sell any particular security. The investment information mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision. All expressions of opinions are subject to change without notice in reaction to shifting market conditions.