S&P 500 jumps 1.5% for best day in three weeks amid tepid inflation data

Stocks gained on Friday after a new print on core inflation in the U.S. came in milder than expected.

Each of the S&P 500, Dow and Nasdaq extended advances into afternoon trading, with each major index closing higher by more than 1%. The S&P 500’s gain of 1.7% was its best in three weeks, and the index ended with a weekly gain of about 1%. Shares of big bank stocks increased after the Federal Reserve announced that most banks will be allowed to resume increasing their dividends and shares repurchases after June 30, ending a year of pandemic-related restrictions.

U.S. crude oil prices rose after dropping by more than 4% on Thursday as additional virus-related lockdowns in Europe and Asia raised demand concerns, outweighing supply issues due to an ongoing blockage of the Suez Canal. Treasury yields rose, and the benchmark 10-year yield increased to about 1.67%.

The past couple weeks have been marked by choppy equity trading, especially heading into some of the final sessions of the first quarter. But overall, the cyclical energy, financials and industrials sectors – or the biggest underperformers of 2020 – have outperformed strongly for the year-to-date, while last year’s leading technology companies have lagged. Signs of improving economic growth have trickled in, with Thursday’s bigger-than-expected drop in new unemployment claims to a pandemic-era low among the latest positive reports.

“We have seen that value has outperformed growth when actual GDP has been above [the] long term average,” Lori Calvasina, RBC Capital Markets head of equity strategy, wrote in a recent note. “In other words, growth stocks tend to outperform when growth is scarce, but value tends to outperform when it is plentiful. The good news for the value trade is that current consensus forecasts expect GDP to remain above trend through the end of 2022. The thing to monitor is whether that changes.”

A prevailing concern for many investors, however, has in fact been centered on the pace of economic expansion, and whether the stimulus-aided post-pandemic recovery might barrel forward even more vigorously than expected and stir up rapid inflation. For February, at least, core personal consumption expenditures – the Fed’s preferred inflation gauge – rose just 1.5%, coming in well below the central bank’s 2% target.

“It is hard to keep up with this economy,” Bank of America economists wrote in a note Thursday. The firm raised its forecast for real gross domestic product growth this year to 7.0%, compared to the Federal Reserve’s median forecast for a rise of 6.5% this year. “We expect a near-term burst of inflation not only reflecting base effects but also due to transient inflation bottlenecks as demand increases faster than supply for certain categories of spend.”

Still, Federal Reserve policymakers have recently tried to assuage market participants’ fears over a sharp rise in inflation. Richmond Fed President Thomas Barkin told Fox News on Thursday that he sees inflation returning “closer to normal next year” after a probable spike this year, which will come as a result of base effects as inflation data laps weak reports from 2020. Chicago Fed President Charles Evans said even a jump of inflation for six months “is not nearly enough” to warrant a pivot on monetary policy by the central bank. And on NPR’s Morning Edition Thursday, Fed Chair Jerome Powell reaffirmed that the Fed remained strongly committed to targeting 2% average inflation over time, and said that any eventual pullback in Fed support would be done “gradually, over time, and with great transparency.”

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2:08 p.m. ET: GameStop shares fall as much as 11%, extending declines

Shares of GameStop (GME) sank Friday afternoon, adding to recent losses after the company reported disappointing fourth-quarter earnings results earlier this week.

Shares dropped as much as 11.15% at session lows to $163.26 apiece. The stock remains down sharply from its high of $483.00 per share in late January, though it is still up strongly for the year-to-date after a Reddit-fueled surge in the stock.

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12:47 p.m. ET: ThredUp shares jump almost 30% in public debut

Shares of ThredUp (TDUP), the online secondhand clothing marketplace, surged 30% in its trading debut after its initial public offering, opening for trading at $18.25 after selling shares at $14 in its IPO.

The company has capitalized on a boom in demand for goods while many services have been closed during the coronavirus pandemic. Though the company’s net losses mounted in its latest fiscal year, its sales also jumped. ThredUp posted net losses of $48 million on $186 million in sales during fiscal 2020, versus loss of $38 million on $164 million in sales during fiscal 2019.

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12:30 p.m. ET: Stocks hold higher, Dow gains 170+ points, or 0.5%

The three major indexes extended gains Friday afternoon. The energy, materials and real estate sectors led advances in the S&P 500, while the communication services and utilities sectors lagged.

Here’s where markets were trading around 12:30 p.m. in New York:

S&P 500 (^GSPC): +26.65 points (+0.68%) to 3,936.17
Dow (^DJI): +174.91 points (+0.54%) to 32,794.30
Nasdaq (^IXIC): +53.6 points (+0.41%) to 13,031.16
Crude (CL=F): +$2.37 (+4.05%) to $60.93 a barrel
Gold (GC=F): +$7.40 (+0.43%) to $1,732.5 per ounce
10-year Treasury (^TNX): +3.4 bps to yield 1.648%

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10:20 a.m. ET: Consumer sentiment improved to a one-year high in March amid stimulus checks, vaccinations: U. Michigan

Consumer sentiment firmed in March, rising to the highest level in a year as stimulus checks and quicker-than-expected vaccinations gave Americans hope of a strong post-pandemic recovery.

The University of Michigan’s final March consumer sentiment index came in at 84.9, up from February’s 76.8 and increasing from the preliminary monthly print of 83.0. Consensus economists expected a final monthly print of just 83.6, according to Bloomberg consensus data.

“Consumer sentiment continued to rise in late March, reaching its highest level in a year due to the third disbursement of relief checks and better than anticipated vaccination progress,” Richard Curtin, chief economist for the university’s Surveys of Consumers, said in a statement. “As prospects for obtaining vaccination have grown, so too has people’s impatience with isolation, as those concerns were voiced by nearly one-third of consumers in March, the highest level in the past year.

“The majority of consumers reported hearing of recent gains in the national economy, mainly net job gains. The data clearly point toward robust increases in consumer spending,” he added. “The ultimate strength and duration of the spending surge will depend on the rate of draw-downs in savings since consumers anticipate a slower pace of income growth.”

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9:30 a.m. ET: Stocks open mostly higher

Here’s where markets were trading shortly after the opening bell Friday morning:

S&P 500 (^GSPC): +14.03 points (+0.36%) to 3,923.55
Dow (^DJI): +120.68 points (+0.37%) to 32,740.16
Nasdaq (^IXIC): +18.83 points (+0.15%) to 12,996.12
Crude (CL=F): +$1.82 (+3.11%) to $60.38 a barrel
Gold (GC=F): -$0.90 (-0.05%) to $1,724.20 per ounce
10-year Treasury (^TNX): +4.4 bps to yield 1.658%

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8:44 a.m. ET: Personal income, spending sank in February ahead of latest stimulus package

Both personal income and spending dropped in February over January in the U.S., in the period before most Americans received additional direct stimulus checks and as winter weather blanketed much of the nation.

Personal income sank by 7.1% during the month following a 10.1% surge in income in January, during which income had been boosted by the $600 stimulus checks authorized by Congress in late December. Personal spending dropped by 1%, or more than the 0.8% decline expected, and reversing some of the 3.4% jump in spending in January.

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8:30 a.m. ET: Core PCE rises just 1.4% in February over last year, with inflation still muted

Core personal consumption expenditures rose less than expected in February over the same month last year, as inflationary pressures remained tepid at the start of 2021.

Personal consumption expenditures, excluding volatile food and energy prices, increased 1.4% in February year-over-year, coming in slightly below estimates for 1.5%, according to Bloomberg consensus data. Core PCE rose by 1.5% in January.

This measure serves as the Federal Reserve’s preferred inflation gauge. Still, however, many economists are looking for a pick-up in inflation later this year. The Fed has forecast core PCE averaging 2.4% in 2021, or above the central bank’s 2% target.

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