Stocks opened higher ahead of the long holiday weekend and kept climbing into the close. Lifting investor sentiment were reports of progress being made on the debt ceiling front, though no deal had been announced by the time the closing bell rang Friday.
House Speaker Kevin McCarthy told reporters this morning that negotiators "worked through the night" to make progress on a deal, and was hoping to keep the momentum going today. "It's really coming down to one thing: This is about spending," McCarthy said.
A June rate hike is likely after hot inflation data.
But it wasn't all about the debt ceiling today. Ahead of the opening bell, data from the Bureau of Economic Analysis showed the personal consumption and expenditures index (PCE) – the Fed's preferred measure of inflation that tracks consumer spending – rose 4.4% year-over-year in April, faster than the 4.2% increase seen in March. Core PCE, which excludes volatile energy and food prices, was up 4.7% from the year prior vs March's 4.6% rise. Month-over-month figures were also higher.
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"Investors may have underestimated the pace of disinflation this year if economic data this week is anything to go by, with U.S. figures today further enforcing the view that price pressures are stubborn and spending is healthy," says Craig Erlam, senior market analyst at currency data provider OANDA. "A soft landing is becoming harder to achieve and there's an increasing risk that central banks will have to go much further and accept the economic consequences."
Indeed, Fed funds futures are now pricing in a 66% chance the central bank will issue another quarter-point rate hike at its June meeting – up from 17% one week ago, according to CME Group.
Marvell stock pops on AI outlook.
In single-stock news, Marvell Technology (MRVL) was the latest semiconductor stock to rally on its artificial intelligence efforts. MRVL stock jumped 32.4% today after the company reported top- and bottom-line beats for its first quarter and said it expects AI revenue to double this fiscal year. On Thursday, Nvidia (NVDA) stock surged more than 24% following its upbeat AI outlook.
At the close, the Nasdaq Composite was up 2.2% at 12,975, the S&P 500 was 1.3% higher at 4,205, and the Dow Jones Industrial Average had added 1.0% to 33,093.
As a reminder, the stock market and bond market are closed Monday in observance of Memorial Day. Banks are also closed.
History points to more gains for stocks.
We passed the 100th trading day for 2023 on Thursday – and history suggests the S&P 500's strong start to the year could translate into an impressive full-year of gains for stocks. Specifically, the index was up 8.1% year-to-date through May 25, excluding dividends. Since 1950, the S&P 500 has averaged a rest-of-year gain of 9.4% in years that it is up at least 7% through the first 100 trading days, says Jeffrey Buchbinder, chief equity strategist at LPL Financial.
However, we all know past performance is not a guarantee of future results, and Buchbinder admits that there are several hurdles facing the stock market right now. "Averting recession for most of the year as inflation falls would likely be part of a strong second half stock market story," Buchbinder says. The Fed pausing on rate hikes and Washington closing a debt ceiling deal would also go a long way toward helping equities.
Technology (+32.4%) has by far been the best-performing sector so far this year, followed by communication services (+29.5%). If you're eyeballing names in these outperforming sectors, make sure to focus on high-quality companies like those we highlight in our lists of the best tech stocks and best communication services stocks. There are also solid picks to be found among specific industries like the best cybersecurity stocks and the best semiconductor stocks.
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