Stock Market Today: S&P 500 Sets New High as Inflation Stays Red-Hot

The S&P 500 finally notched a new record high Thursday as investors focused on the May consumer price index (CPI) report, which showed another month of rising inflation.

Headline CPI grew 5.0% year-over-year and 0.6% versus April, with both metrics exceeding consensus expectations thanks to big leaps in airline fares and used cars. And yet, the market didn't flinch.

Anu Gaggar, senior global investment analyst for registered investment adviser (RIA) Commonwealth Financial Network, says the May CPI data offered no "definite answer to the great inflation debate," and forces investors instead to read the bond market tea leaves.

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"The 10-year Treasury yield is back at levels last seen in early March," Gaggar says, "signaling that the bond market is falling in line with the Fed's thinking that inflation is transitory and does not warrant tapering of monetary stimulus any time soon."

"We don't expect the Federal Reserve's narrative to change after Thursday's inflation data," adds Nancy Davis, portfolio manager of the Quadratic Interest Rate Volatility and Inflation Hedge Exchange-Traded Fund (IVOL). "We believe the Federal Reserve is ready to allow inflation to continue to overshoot its 2% target in an effort to achieve maximum employment, which is the Fed's focus right now."

That, as well as a sixth consecutive drop in weekly unemployment filings (-9,000 to 376,000), was just enough to push the S&P 500 to a new record close of 4,239, up 0.5%.

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Ryan Detrick, chief market strategist at LPL Financial, notes that for 10 consecutive days, the S&P 500 had closed within 1% of an all-time high, yet didn't close at an all-time high. "Over the past 50 years that has only happened three other times," he says.

Meanwhile, the Nasdaq Composite (+0.8% to 14,020) finished above 14,000 for the first time since late April. And another strong day from Big Pharma stocks such as Merck (MRK, +2.9%) and Amgen (AMGN, +2.1%) helped the Dow Jones Industrial Average close marginally higher, to 34,466.

Other action in the stock market today:

• The small-cap Russell 2000 retreated yet again, off 0.7% to 2,311.
• Signet Jewelers (SIG, +14.0%) got a lift today after the jewelry retailer reported earnings. In its first quarter, SIG brought in earnings and revenues above analyst estimates, while both same-store and e-commerce sales doubled year-over-year in the 13-week period ended May 1.
• RH (RH, +15.7%) was another big earnings winner. The home furnishings retailer – formerly known as Restoration Hardware – beat on both the top and bottom lines in its first quarter and boosted its full-year revenue growth and adjusted operating margin forecasts.
• U.S. crude oil futures added 0.5% to end at $70.29 per barrel.
• Gold futures eked out a marginal gain to settle at $1,896.40 an ounce.
• The CBOE Volatility Index (VIX) sank 10.2% to 16.07.
• Bitcoin advanced 1.2% to $36,703.39, though it had ascended to as high as $38,200 during Thursday's trade before retreating to more modest gains. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m. each trading day.)

No Reason to Panic About Inflation Yet

Although some inflationary pressures we're seeing might indeed be transitory, several experts believe they could stick if economic growth exceeds expectations past 2021.

"Those investors in the bond market that think 1.5% interest for 10 years is enough to compensate them for the likely economic growth and 'normalized' inflation … that we will see between now and 2031 are making a huge bet that U.S. economic growth will be subpar and that consumers will 'get everything out of their system' in one year, and that's a bet we're unwilling to make," says Chris Zaccarelli, chief investment officer for Independent Advisor Alliance, another RIA.

And if growth does indeed stick, the path of least resistance for the stock market (longer-term, at least) remains up.

If you're one for playing the hot hand, you could stay with stocks that leverage the continued fever pitch in housing – which could mean homebuilders and housing-adjacent stocks such as DIY retailers, or you could go straight to the source, via these timber stocks.

On the other hand, if you're a stickler for reliability and stability over a long-term time horizon, you can still do well with the tried-and-true blue chips of the Dow.

But perhaps don't grab the first one off the rack.

While every Dow member is a well-known large-cap with ample financial means, the best investments at any moment can vary from time to time. Today, we've taken a refreshed look at the 30-component Dow Jones Industrial Average to see which stocks have accumulated the largest bull camps.