Before The Bell
Investors seem a little less concerned about inflation heading into Memorial Day weekend, although the topic is still getting a lot of attention.
Stock trading turned choppy in the month now ending, as signs of rising prices and less uniformly upbeat economic data nicked bullish sentiment somewhat.
Signals that inflation is running hot, have prompted the view that the Federal Reserve might be forced to scale back its aggressive monetary stimulus policies quicker than first envisioned. That would be a clear negative for the market.
But the central bank is maintaining its conviction that inflationary pressures will be temporary. Treasury Secretary Yellen, a former Fed chair, supports that view.
One reason to believe that inflation is likely to prove a passing phase is the skewed demand for home-related goods during the pandemic and the related disruption to the manufacturing base.
Importantly, the bond market seems to be allowing more time to see what happens when the economy normalizes. The current yield on the benchmark 10-year Treasury note of 1.61% is off the year’s high of 1.78%.
If a broad rise in prices was thought to be gathering momentum, the yield on the benchmark 10-year T-note would probably already be pushing toward 2.00%, and stocks would be more volatile.
The less-alarmed stance toward inflation overall has taken pressure off the market. At the close on Thursday, the Dow Jones Industrial Average was up 142 points and the S&P 500 was five points higher. But the more interest-rate sensitive NASDAQ fell a couple of points as bond yields ticked up. The direction of interest rates is still likely to be higher over time, as the economy gains steam.
Meanwhile, the day’s business news showed an unexpected 1.3% decline in April Durable-goods orders. The decline stemmed from a setback in the automotive sector, which has been hurt by the global shortage of computer chips. Visiting new-car dealerships nowadays provides a view of lots not as filled with vehicles as usual. Excluding the transportation sector, orders rose a healthy 1.1%.
Elsewhere, weekly initial jobless claims fell to a pandemic low, even if the level is still above pre-Covid days.
In corporate news, discount retailers Dollar General (DG) and Dollar Tree (DLTR) both reported better-than-expected earnings. Dollar General boosted its outlook, benefiting its shares, but Dollar Tree, citing rising freight costs, reduced its guidance, and its shares fell.
This morning, stock futures are pointing to a moderately higher open about an hour ahead of the opening bell.
We wish all of our readers a safe and happy Memorial Day holiday.
– Robert Mitkowski
At the time of this writing, the author did not have positions in any of the companies mentioned.
