Highlights
Equities ended narrowly mixed Friday but showed gains on the week after a mixed bag of macro news ended with bond yields sharply lower following a big downside miss on retail sales. The Dow Jones industrial average slipped 0.4 percent, the S&P 500 was flat, and the Nasdaq gained 0.4 percent. US bond yields, the dollar and WTI crude oil prices all declined.
Weak retail sales, down 0.9 percent versus the 0.1 percent decline expected, lifted hopes for two rate cuts this year that appeared pretty much dashed earlier in the week after hawkish Federal Reserve comments and hotter than expected inflation readings. Investors didn't focus much on stronger industrial production figures or bigger than expected gains in import and export prices. After the retail sales report, fed funds futures were pricing in a 59 percent probability of a Fed rate cut in June, up from 45 percent beforehand. Fed funds are pricing a 100 percent probability of one cut by December and a 63 percent likelihood of a second rate cut by December, up from 32 percent before the retail report.
For the week, the Dow gained 0.3 percent, the S&P was up 1.1 percent, and the Nasdaq rose 0.4 percent. The better showing reflected relief that President Trump's promised"reciprocal" tariffs did not take effect immediately but rather would be pushed back to April. Other bullish factors included the view that this week's inflation readings were not as disastrous as they seemed at first. That was in part because components of PPI-FD that feed into the Fed's preferred PCE price inflation measure prompted forecasters to mark down their PCE price inflation forecasts. Risk assets also seemed to benefit from rising hope for a negotiated settlement to the Russia-Ukraine war. Some favorable corporate news helped too. That included positive comparable sales growth from McDonalds, strong growth at Coca-Cola and favorable AI news from Apple and Cisco.
Weak retail sales, down 0.9 percent versus the 0.1 percent decline expected, lifted hopes for two rate cuts this year that appeared pretty much dashed earlier in the week after hawkish Federal Reserve comments and hotter than expected inflation readings. Investors didn't focus much on stronger industrial production figures or bigger than expected gains in import and export prices. After the retail sales report, fed funds futures were pricing in a 59 percent probability of a Fed rate cut in June, up from 45 percent beforehand. Fed funds are pricing a 100 percent probability of one cut by December and a 63 percent likelihood of a second rate cut by December, up from 32 percent before the retail report.
For the week, the Dow gained 0.3 percent, the S&P was up 1.1 percent, and the Nasdaq rose 0.4 percent. The better showing reflected relief that President Trump's promised"reciprocal" tariffs did not take effect immediately but rather would be pushed back to April. Other bullish factors included the view that this week's inflation readings were not as disastrous as they seemed at first. That was in part because components of PPI-FD that feed into the Fed's preferred PCE price inflation measure prompted forecasters to mark down their PCE price inflation forecasts. Risk assets also seemed to benefit from rising hope for a negotiated settlement to the Russia-Ukraine war. Some favorable corporate news helped too. That included positive comparable sales growth from McDonalds, strong growth at Coca-Cola and favorable AI news from Apple and Cisco.
Definition
Market Reflections track market reaction to the trading day's major events. Economic data, policymaker speeches, and company news are featured in this report as well as key indexes and financial instruments.
Description
Understanding why markets respond as they do is fundamental for an investor. Market Reflections help explain how the day's events, news, and data impact the outlook for the economy and for market prices.
