Stocks Add to this Week’s Rally on Friendly Inflation News

What you need to know…

The S&P 500 Index ($SPX) (SPY) Friday closed up +1.44%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +1.26%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +1.68%.

Stock indexes Friday added to this week’s gains, with the S&P 500 climbing a 6-week high, the Dow Jones Industrials posting a 3-1/2 week high, and the Nasdaq 100 climbing to a 7-1/2 month high.

Stocks rallied Friday after a key U.S. inflation measure rose less than expected in February, suggesting the Fed may be close to ending its rate-hiking campaign.  The easing of inflation pressures knocked bond yields lower and fueled a rally in technology stocks.  Month and quarter-end buying by fund managers also supported stock gains Friday.

U.S. stocks also had carryover support from Friday’s rally in Chinese stocks on signs the Chinese economy is recovering after Chinese manufacturing and service sector activity expanded more than expected this month.  The China Mar manufacturing PMI fell -0.7 to 51.9, stronger than expectations of 51.5.  The Mar non-manufacturing PMI unexpectedly rose +1.9 to 58.2, stronger than expectations of a decline to 55.0 and the fastest pace of expansion in more than 11 years.

Friday’s U.S. economic news was mixed for stocks.  On the positive side, the U.S. Feb PCE core deflator, the Fed's preferred inflation gauge, unexpectedly eased to 4.6% y/y from 4.7% y/y in Jan, the slowest pace of increase in 16 months. Also, Feb personal income rose +0.3% m/m, stronger than expectations of +0.2% m/m.  In addition, the Mar MNI Chicago PMI unexpectedly rose +0.2 to 43.8, stronger than expectations of a decline to 43.0.

On the negative side, Feb personal spending rose +0.2% m/m, weaker than expectations of +0.3% m/m.  Also, the University of Michigan U.S. Mar consumer sentiment was revised lower to 62.0 from 63.4, weaker than expectations of 63.3.

Boston Fed President Collins said the Fed still has "more work to do" to bring inflation down and that Fed projections this month were a good measure of what she expects for interest rates and the economy, suggesting she favors one more 25 bp Fed rate hike.

New York Fed President Williams said it’s “uncertain” how much the recent bank turmoil will affect credit conditions and the economy, and policymakers will rely on data to guide their future policy decisions.

Bank of America said EPFR Global data show investors in Q1 poured $508 billion into cash funds, the largest quarterly inflow in 3 years.  In addition, according to data from the Investment Company Institute, assets in U.S. money-market funds have risen to a record $5.2 trillion, with more than $300 billion added in the three weeks to March 30.

Global bond yields Friday moved lower and supported stocks.  The 10-year T-note yield fell -6.1 bp to 3.488% after the U.S. Feb core PCE deflator rose less than expected.  The 10-year German bund yield retreated from a 2-week high of 2.404% and fell -8.2 bp at 2.292%.  The 10-year UK gilt yield fell back from a 2-1/2 week high of 3.572% and dropped -2.8 bp to 3.490%. 

Overseas stock markets Friday settled higher.  The Euro Stoxx 50 closed up +0.69%.  China’s Shanghai Composite stock index closed up +0.36%, and Japan’s Nikkei Stock Index closed up +0.93%. 

Today’s stock movers…

Technology stocks rallied Friday as an easing of inflation concerns pushed T-note yields lower.  Align Technology (ALGN) closed up more than +7% to lead gainers in the S&P 500.  Also, Datadog (DDOG) and Atlassian Corp (TEAM) closed up more than +6%. In addition, Crowdstrike Holdings (CRWD), Illumina (ILMN), and Tyler Technologies (TYL) closed up more than +3%. Finally, Alphabet (GOOGL), Palo Alto Networks (PANW), NXP Semiconductors (NXPI), and Zscaler (ZS) closed up more than +2%.   

U.S. electric vehicle automakers rallied Friday in hopes of improved sales after details were released from the Inflation Reduction Act that said battery components of electric vehicles must be made or sourced in North America in order for the vehicles to be eligible for up to $7,500 in tax credits.  Rivian Automotive (RIVN) closed up more than +7% to lead gainers in the Nasdaq 100.  Tesla (TSLA) closed up more than +6%, and Lucid Group (LCID) closed up more than +5%.

Real estate trusts moved higher on hopes the Fed was close to ending its rate-hike campaign after the Feb core PCE deflator, the Fed’s preferred measure of inflation, rose less than expected.  As a result, Digital Realty Trust (DLR) closed up more than +5%, and Simon Property Group (SPG) closed up more than +4%. Also, Kimco Realty Group (KIM) and Federal Realty Investment Trust (FRT) closed up more than +3%. In addition, AvalonBay Communities (AVB),  Regency Centers (REG), VICI Properties (VICI), Equity Residential (EQR), and Essex Property Trust (ESS) closed up more than +2%.

Advanced Auto Parts (AAP) closed up more than +2% after Barclays upgraded the stock to equal weight from underperform.

Micron Technology (MU) closed down more than -4% to lead losers in the S&P 500 and Nasdaq 100 after the Cyberspace Administration of China said it would launch a cybersecurity review on Micron’s product sales in China.

Generac (GNRC) closed down more than -3% after Bank of America downgraded the stock to underperform from neutral.

Ventas (VTR) closed down more than -2% in pre-market trading after Fitch Ratings affirmed the company’s long-term issuer rating at BBB+ with a negative outlook.

Regional bank stocks were under pressure Friday on the concern some of them have unrealized losses on their books.  Zions Bancorp (ZION), Comerica (CMA), and Citizens Financial Group (CFG) closed down more than -1%. 

Across the markets…

June 10-year T-notes (ZNM23) on Friday closed up +11 ticks, and the 10-year T-note yield fell by -6.1 bp to 3.488%.  June T-notes Friday rallied moderately after U.S. price pressures eased when economic news showed the Feb core PCE deflator rose less than expected.  Also, month and quarter-end buying Friday gave T-note prices a boost.

On the negative side were hawkish comments from Fed President Collins, who said the Fed still has "more work to do" to bring inflation down.  T-notes also had early pressure Friday when the 10-year German bund yield rose to a 2-week high of 2.404% after Eurozone Mar core CPI rose to a record +5.7% y/y.

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