U.S. stocks head for fresh 14-month highs as encouraging inflation report caps off strong first half

What’s driving markets

The final trading day of the week, month and quarter is presenting a positive picture for U.S. stocks as the main indexes climb after the latest PCE inflation report showed price pressures continued to abate in May.

The headline inflation reading showed consumer-price growth as measured by the index, the Fed’s preferred inflation gauge, slowed to 3.8% in May on a 12-month basis, the slowest such increase since April 2021. May consumer price index data released earlier this month showed the headline rate falling to 4%, also the lowest reading in roughly two years.

Prices increased just 0.1% on a month-over-month basis in May, the same rate reflected by the CPI numbers, while core prices, which exclude volatile food and energy products, increased by 0.3%, in line with economists’ expectations.

See: U.S. inflation slows, PCE shows, but price pressures still intense

The latest inflation data added to an increasingly upbeat portrait of a U.S. economy, which has continued to expand despite the Fed’s most aggressive policy tightening since perhaps the 1980s.

Data released on Thursday showed U.S. GDP expanded by 2% during the first quarter, much stronger than the previous 1.3% reading. A consumer confidence survey data released earlier this week showed Americans were more optimistic about the economy than at any time during the past 17 months as both inflation expectations and recession fears waned.

“Today’s data shows economic resilience, and the disinflationary narrative are becoming more evident,” said George Mateyo, the CIO of Key Private Bank, in emailed commentary.

Still, “additional proof is needed,” Mateyo cautioned, before the Fed can declare victory over inflation.

Powell said earlier this week that he didn’t expect inflation in the U.S. to return to the Fed’s 2% target until 2025.

“Right now, the Fed’s job is not clear cut. While they may not be done with rake hikes, perhaps they don’t have much more work to do,” Mateyo added.

Eurozone inflation data released earlier showed price pressures eased in countries using the euro, with the official estimate of the 12-month pace of inflation falling to 5.5% in June, down from 6.1% in May.

Adding to the tailwind for stocks, Treasury yields pared an earlier advance following the data, with the yield on the 10-year note
TMUBMUSD10Y,
3.818%
down marginally at 3.848%. A recent advance in yields was beginning to worry some investors, who feared that higher yields could disrupt the equity-market rally that has carried the S&P 500 index higher by more than 14% since the start of the year, according to FactSet data.

Other U.S. economic updates released on Friday included the Chicago Business Barometer, which rose to 41.5 in June from 40.4 during the prior month. The final reading of June consumer sentiment showed the index improved to 64.4 in June, up marginally from the prior month, but a four month high.

Also, consumer spending data included in the PCE report showed expenditures slowed to 0.1% last month, slower than the 0.3% economists had anticipated.

Companies in focus

• Nike
  NKE,
  -2.28%
  shares tumbled after the retailer’s fourth-quarter profit came in below Wall Street expectations amid markdowns and weaker demand for sneakers and clothing

• Constellation Brands Inc. 
  STZ,
  +0.15%
  rose after posting better-than-expected fiscal first-quarter earnings on Friday, boosted by strength in its beer business where sales rose 11% due to strong growth for Modelo Especial, which recently replaced Bud Light as the best-selling beer in the U.S.

• Apple
  AAPL,
  +1.46%
  is on track to finish Friday’s session with a $3 trillion market capitalization. Wall Street analysts have grown even more bullish on the iPhone maker as the company was initiated with a Buy rating at Citi. Analyst Atif Malik set a price target of $240 on the stock.

• Carnival Corp.
  CCL,
  +7.75%
  shares were up sharply, after a broker upgrade, capping off what has been a strong month for cruise stocks.