Stock Market Update

[BRIEFING.COM] The stock market had a split personality on this final trading day of what was a great month. The morning session was governed by a defensive-minded disposition and some trade angst after President Trump said in a social media post that China had violated the preliminary trade agreement with the U.S. and added, "So much for being Mr. NICE GUY!"

That sent the major indices lower even though the Personal Income and Spending Report for April had some pleasing attributes that included a moderation in inflation and a robust increase in real disposable personal income. The indices dropped to session lows shortly after the start of the New York lunch hour on a Bloomberg report that the U.S. might impose additional technology-related sanctions on China.

The S&P 500 fell to 5,843, down 1.2% for the session, but managed to climb all the way back to positive territory in the afternoon session. It did so, driven by a buy-the-dip trade that has proven successful time and again since the April 7 low and bolstered by the president's acknowledgment in an Oval Office press conference that he will likely talk to President Xi and hopefully work things out.

The latter took the edge off some of the trade angst going into the weekend and presumably triggered some short-covering activity that supported the comeback effort.

The mega-cap cohort was not particularly strong today, but it was instrumental in the afternoon recovery. The Vanguard Mega-Cap Growth ETF (MGK), which had been down 1.5% as the S&P 500 hit its lows for the day, ended the session down 0.2%.

There wasn't a lot of overt strength in the stock market today, other than in individual stocks like Ulta Beauty (ULTA 471.46, +49.67, +11.8%) and Costco (COST 1040.18, +31.44, +3.1%), which reported earnings.

Costco carried the consumer staples sector (+1.2%) to the top of the sector leaderboard, where it held company with the utilities sector (+1.1%). The energy (-0.7%), consumer discretionary (-0.6%), and information technology (-0.4%) sectors were the only losing sectors today.

NVIDIA (NVDA 135.13, -4.06, -2.9%) and the semiconductor stocks came under some increased selling pressure. The Philadelphia Semiconductor Index dropped 2.1%, but to be fair, it was up 14.6% for the month coming into today's trade, placing it well ahead of the S&P 500 (+6.2%), which registered its best month since 2023.

Separately, Treasuries had a fairly stable outing that was accented with a slightly positive bias and shorter-dated securities outperforming longer-dated securities. Month-end rebalancing by pension funds (out of stocks and into bonds) was deemed to be a source of support.

• S&P 500: +0.5% YTD
• DJIA: -0.6% YTD
• Nasdaq: -1.0% YTD
• S&P 400: -3.8% YTD
• Russell 2000: -7.3% YTD

Reviewing today's economic data:

• Personal income increased a robust 0.8% month-over-month in April (Briefing.com consensus 0.3%) following an upwardly revised 0.7% increase (from 0.5%) in March. Personal spending rose 0.2% month-over-month, as expected, following an unrevised 0.7% increase in March. The PCE Price Index was up 0.1% month-over-month, as expected, which left it up a palatable 2.1% year-over-year versus 2.3% in March. The core-PCE Price Index was also up 0.1%, as expected, leaving it up 2.5% year-over-year versus 2.7% in March.
  • The key takeaway from the report is manifold: inflation rates are moderating, personal income growth is strong, and the personal savings rate picked up to 4.9% from 4.3% in March, which points to pent-up spending potential that will keep the economy on a growth track in the second quarter.
• The final University of Michigan Index of Consumer Sentiment for May increased to 52.2 (Briefing.com consensus 50.8) from the preliminary reading of 50.8. The final reading for April was also 52.2. In the same period a year ago, the index stood at 69.1.
  • The key takeaway from the report is that it ends four consecutive months of plunging declines in sentiment, although consumers still have concerns about their current personal finances and the future, with inflation expectations weighing.
• The May Chicago PMI dropped to 40.5 (Briefing.com consensus 45.0) from 44.6 in April.
• The Advance Intl. Trade in Goods Deficit narrowed to $87.6 billion from -$162.3 billion, Advance Retail Inventories  were down 0.1% folliwing a 0.3% decline in March, and Advance Wholesale Inventories were unchanged following a 0.3% increase in March.