Stocks Extend Gains On Debt Deal Optimism, Inflation Stays Elevated

Barry Adams
26 May, 2023
New York City

Stocks on Wall Street advanced after durable goods orders increased and a measure of inflation rose more than expected in April. 

The yield on Treasury notes rose after the personal consumption expenditure price index rose more than expected, indicating that inflation forces are still strong. 

The latest report on the PCE index provided another signal for the Fed policymakers to continue its aggressive rate hike. 

Fed policymakers are more likely to lift interest rates by at least 25 basis points at the next meeting in June. 

Investors also reacted to a barrage of corporate earnings news ahead of Memorial Day weekend. 

The White House and Republican leaders are getting closer to a deal after hard negotiations on Thursday. 

Debt ceiling negotiations appear to be on track after President Joe Biden and democrats agreed to hold spending level at fiscal year 2023 level for the next two years to increase debt ceiling level. 

Investors welcomed the likely debt agreement, but the deal still needs approvals by the Senate and House where both parties have to deal with recalcitrant members. 

 

Persona Consumption Expenditure Inflation Index Stays Elevated 

Personal consumption expenditure increased 0.4% in April from the previous month and rose 4.4% from a year ago, the U.S. Bureau of Economic Analysis reported Friday. 

Prices for goods increased 0.3% and prices for services increased 0.4% and food prices decreased less than 0.1%, and energy prices increased 0.7%.

Core personal consumption expenditure, which excludes food and energy, accelerated to 0.4% in April from March.  

On a yearly basis, core PCE increased 4.7%.  

 

Personal Spending Jumped 0.8% In April 

Personal income increased 0.4% from the previous month in April, according to estimates released today by the Bureau of Economic Analysis. 

Disposable personal income or DPI increased 0.4% and personal consumption expenditures or PCE increased 0.8%, rising at the fastest pace in three months. 

 

Durable Goods Orders Advanced 1.1% 

Durable goods orders increased 1.1% in April, slower than the upwardly revised 3.3% in March, the U.S. Census Bureau announced Friday.   

Excluding transportation, new orders decreased 0.2% and excluding defense, new orders fell 0.6%. 

The closely watched proxy for business spending, non-defense capital goods orders, excluding aircrafts, increased 1.4% in April after falling 0.6% in March. 

Shipments for manufactured goods declined 0.7% in April, following 0.7% increase in March. 

Inventories of manufactured goods increased 1.0% in April following a fall of 1.0% in March. 

 

U.S. Indexes & Yields 

The S&P 500 index increased 0.5% to 4,174.13 and the Nasdaq Composite rose 0.6% to 12,808.47. 

The yield on 2-year Treasury notes increased to 4.59%, 10-year Treasury notes edged up to 3.83% and 30-year Treasury bonds held at 3.99%. 

Crude oil rose $0.97 to $72.81 a barrel and natural gas prices rose 2 cents to $2.41 a thermal unit. 

 

U.S. Stock Movers

Costco Wholesale Corporation declined 0.3% to  $485.31 after the retailer reported mixed quarterly results. 

Ulta Beauty plunged 11.3% to $431.17 despite the company reporting higher revenue and earnings in the first quarter. 

The retailer lifted its full year sales outlook slightly and reiterated its earnings per share. 

RH declined 5.4% to  $240.86 after the home improvement retailer reported better-than-expected sales and earnings in the fiscal first quarter. 

However, the retailer estimated higher-than-expected markdowns in the second quarter and estimated weaker-than-expected fiscal second quarter revenue.  

Marvell Technology Inc soared 23.7% to $61.45 after the advanced semiconductor company delivered first quarter results ahead of expectations and said second quarter sales are expected to accelerate.

Gap Inc soared 14.2% to $8.48 after the struggling apparel retailer reported improvement in operating margin and a decline in air shipment expenses. 

The retailer reported net sales in the first quarter declined 6% to $3.2 billion and 3% decline in comparable sales. 

Net loss in the quarter shrank to $18 million from $144 million and diluted loss per share fell to 5 cents from 44 cents a year ago.