Nasdaq 100, Dow Jones, S&P 500 News: Subdued Reaction to Lukewarm PCE Data

S&P 500 Flat as Nvidia Profits Booked and Inflation Data Meets Expectations

The S&P 500 was largely unchanged on Friday, as investors took profits on Nvidia and the market experienced a pause. This occurred despite the Federal Reserve’s preferred inflation measure coming in close to expectations. The subdued market response suggests investors are grappling with mixed signals from the inflation data and consumer sector performance.

Inflation Data and Market Response

Initially, stocks rallied following the release of the PCE data, which showed no significant deviation from expectations. However, the rally was tempered as investors assessed the data’s implications. The data indicated that while inflation wasn’t alarming, it also wasn’t low enough to prompt a rate cut from the Federal Reserve. This has led to a market environment that is expected to be rangebound until the next earnings reports are released.

Sector Performance and Market Indices

The S&P 500 and Nasdaq were on track to break their five-week winning streaks, with declines of 1.7% and 2.4% respectively. The Dow Jones Industrial Average also slipped 1.8%, marking its second consecutive week of losses. Despite these weekly declines, May is still poised to be a winning month overall. The Dow is up 1.5%, the S&P 500 has gained 3.6%, and the Nasdaq has surged 5.5%.

Key Drivers of Market Performance

May’s market strength can be attributed in part to a significant rise in Nvidia’s stock following its impressive earnings report last week. Although Nvidia’s shares fell over 1.5% on Friday, they are still set to end the month nearly 26% higher. Other tech giants like Tesla, Microsoft, Meta, and Netflix also saw their stocks drop by more than 1% on Friday, which weighed down the broader market.

Economic Data and Corporate Earnings Impact

Economic data released on Friday showed that the core personal consumption expenditures price index increased by 0.2% in April, aligning with expectations. On an annual basis, core PCE rose 2.8%, slightly above the 2.7% forecast. The market reaction was one of relief, as the data did not deviate significantly from projections.

In corporate earnings, Dell Technologies dropped over 17% despite strong results due to a smaller-than-expected AI server backlog. Conversely, Zscaler rose nearly 7%, and Gap jumped more than 26%, while MongoDB plunged almost 25%.

Market Forecast

The market is anticipated to remain choppy in the near term, influenced by factors such as the upcoming election, Treasury yields, and consumer spending trends. While May’s performance has been strong, investors remain cautious amid these uncertainties. A balanced approach to trading is recommended as the market adjusts to evolving economic and political conditions.

Technical Analysis

E-mini S&P 500 Index fuures are bouncing between negative and positive following the release of the “not to hot, not to cold” inflation report.

It looks as if trader reaction to the 50-day moving average at 5215.76 is likely to set the tone for the session.

However, over the longer-term we see the possibility of two-developments:  a rangebound trade whereby the 50-day MA becomes support and the record high 5368.25 becomes resistance. Or the 50-day MA at 5215.76 becomes resistance and the 200-day MA at 4872.73 become support.

The former suggests a tight rangebound trade, while the latter indicates a wide, highly volatile trade.