Stocks moved to the upside early in the session on Friday but showed a lack of direction over the remainder of the trading day. The major averages eventually ended the day mixed, although the Dow closed higher for the eighth consecutive session.

While the tech-heavy Nasdaq (NASDAQI:COMP) edged down 5.40 points or less than a tenth of a percent to 16,340.87, the S&P 500 (SPI:SP500) crept up 8.60 points or 0.2 percent to 5,222.68 and the Dow (DOWI:DJI) rose 125.08 points or 0.3 percent to a new one-month closing high of 39,512.84.

For the week, the Nasdaq jumped by 1.1 percent, while the S&P 500 and the Dow surged by 1.9 percent and 2.2 percent, respectively.

The early strength on Wall Street partly reflected recently renewed optimism about the outlook for interest rates. Recent data has pointed to some softness in the U.S. labor market, increasing investor confidence the Federal Reserve will lower interest rates in the coming months.

While the Fed is still widely expected to leave interest rates unchanged in June, there is a 74.2 percent chance rates will be lower by September, according to CME Group’s FedWatch Tool.

However, the early buying interest was partly offset by the release of a report from the University of Michigan showing a substantial deterioration in U.S. consumer sentiment in the month of May.

The University of Michigan said its consumer sentiment index plunged to 67.4 in May from 77.2 in April. Economists had expected the index to edge down to 76.0.

With the much steeper than expected drop, the consumer sentiment index tumbled to its lowest level since hitting 61.3 last November.

The report also showed a notable increase in year-ahead inflation expectations, which jumped to 3.5 percent in May from 3.2 percent in April, reaching the highest level since hitting 4.5 percent last November.

Long-run inflation expectations also inched up to 3.1 percent in May from 3.0 percent in April, remaining elevated relative to the 2.2-2.6 percent range seen in the two years pre-pandemic.

“Today’s lower-than-expected consumer sentiment numbers are a warning sign that the consumer shouldn’t be taken for granted,” said Chris Zaccarelli, Chief Investment Officer for Independent Advisor Alliance. “In addition, inflation expectations have been rising as well, which is a double whammy for the Fed.

He added, “If spending slows down and inflation increases, we’ll get the opposite of the Goldilocks scenario that many were hoping for, and the Fed will be in an especially difficult position of choosing between accommodating a slowing economy and fighting increasing inflation expectations.”

Sector News

Most of the major sectors showed only modest moves on the day, contributing to the lackluster performance by the broader markets.

Semiconductor stocks showed a strong move to the upside, however, with the Philadelphia Semiconductor Index climbing by 1.0 percent.

Networking stocks also saw notable strength on the day, while energy stocks came under pressure amid a decrease by the price of crude oil.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Friday. Japan’s Nikkei 225 Index rose by 0.4 percent, while Hong Kong’s Hang Seng Index surged by 2.3 percent.

The major European markets also moved to the upside on the day. While the U.K.’s FTSE 100 Index advanced by 0.6 percent, the German DAX Index and the French CAC 40 Index climbed by 0.5 percent and 0.4 percent, respectively.

In the bond market, treasuries came under pressure over the course of the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 5.5 basis points to 4.504 percent.

Looking Ahead

Inflation data is likely to be in the spotlight next week, with the Labor Department due to release its closely watched reports on consumer and producer prices in the month of April.

SOURCE: RTTNEWS