This past week on Wall Street was a tale of two halves. The early part of the week saw cautious trading as investors digested economic data like inflation data and awaited key events. However, Friday delivered a dramatic eleventh-hour rally, leading to a mixed bag of results for the major indexes by the close. 

Major Index Performance 

The Dow Jones Industrial Average (DJIA) emerged as the biggest winner, surging 1.51% on Friday to close at 38,686.32.   

The S&P 500 also benefited from the late-week rally, climbing 0.80% and closing at 5,277.51.  

However, the Nasdaq Composite finished nearly flat, down a mere 0.01% and closing at 16,735.02.  

The contrasting performance across indexes highlights the continued selective nature of the market recovery. 

Inflation Data Impact 

The late-week surge was likely triggered by the release of key inflation data. This data, which largely met expectations, showed a moderate increase in core inflation compared to the previous year.  

This seemingly positive development could signal that inflation is not spiraling out of control, potentially easing concerns that the Federal Reserve might need to implement more aggressive interest rate hikes. 

Investor Sentiment 

The strong finish on Friday suggests a sigh of relief among some investors. The lack of a significant negative reaction to the inflation data could indicate a growing sense of confidence in the market’s ability to weather inflationary pressures. However, with lingering economic uncertainties, overall investor sentiment remains cautiously optimistic. 

Weekly Performance Summary 

For the week, the S&P slipped by -0.5%, the Nasdaq fell by -1.1%, and the blue-chip Dow lost -1.0%.  

Closing levels on Friday, May 31^st 2024:  

Friday’s Uncertainty 

It’s hard to pinpoint exactly what happened on Friday. The Federal Reserve’s preferred measure of underlying US inflation moderated in April, providing reassurance to policymakers about potentially lowering interest rates.  

• Core Personal Consumption Expenditures (PCE) Price Index: Increased 0.2% from the previous month and 2.8% year-over-year. 

• Inflation-Adjusted Consumer Spending: Unexpectedly fell 0.1%, dragged down by a decrease in outlays for goods and softer services spending. Wage growth, the primary fuel for demand, moderated. 

Despite the PCE data aligning with most expectations,the S&P 500 drifted lower after the data was released. 

It seemed like a rotation out of tech into non-tech stocks for month-end rebalancing, with the Nasdaq falling 2% at one stage. 

The Mysterious Rally 

The huge rally at the close remains a mystery. If I were to guess, it was probably a combination of algorithmic trading triggers and dip-buying FOMO. 

Outlook and Upcoming Data 

Friday’s trading may not provide clear direction for this week. All focus is now shifting to the upcoming employment data. In the meantime, be prepared for more volatility. 

Source: CBOE, Bloomberg 

This commentary is written by James Gomes, a seasoned finance industry veteran with extensive experience of over 30 years, including a substantial tenure at a reputable U.S. bank exceeding 20 years.