The second quarter has been kind to many stocks, none more so than the mega-cap stocks, yet the quarter is coming to an end with a broadening of the participation in the stock market’s advance.
To wit: the market-cap weighted S&P 500 is up 5.2% in June.
Currently, the S&P 500 futures are up 28 points and are trading 0.7% above fair value, the Nasdaq 100 futures are up 133 points and are trading 0.9% above fair value, and the Dow Jones Industrial Average futures are up 163 points and are trading 0.5% above fair value.
The equity futures market had shown a positive bias ahead of the 8:30 a.m. ET release of the May Personal Income and Spending Report. A move higher in Apple (AAPL) after Citigroup began coverage of the stock had a lot to do with that, as did gains in other mega-cap stocks that more than offset the weakness in Nike (NKE) following its weaker-than-expected fiscal Q4 report.
The equity futures market took another leg higher following the release of the aforementioned economic report, which was seemingly “just right” for the market in that income was up in May while spending and PCE inflation both moderated.
Personal income increased 0.4% month-over-month (Briefing.com consensus 0.4%; prior revised to 0.3% from 0.4%), personal spending rose 0.1% (Briefing.com consensus 0.3%; prior revised to 0.6% from 0.8%), the PCE Price Index advanced 0.1% (Briefing.com consensus 0.1%; prior 0.4%), and the Core-PCE Price Index, which excludes food and energy, increased 0.3% (Briefing.com consensus 0.3%; prior 0.4%).
On a year-over-year basis, the PCE Price Index was up 3.8% versus 4.3% in April. The core-PCE Price Index was up 4.6% year-over-year versus 4.7% in April.
The key takeaway from the report is the understanding that the core-PCE Price Index moderated in May; however, it didn’t move much, demonstrating some stickiness in this key inflation gauge for the Fed.
The latter point notwithstanding, the 2-yr note yield improved following the release, coming down from 4.92% to 4.84%, and the 10-yr note yield also improved, falling from 3.88% to 3.82%. The inference, we suppose, is that this data point might not persuade the Fed from raising rates in July, but the disinflation trend could put a clamp on the willingness to raise rates again in September.
Notably, the CME FedWatch Tool shows an 84.3% probability of a 25-basis points rate hike in July to 5.25-5.50%, versus 89.3% yesterday, and only a 20.8% probability of a rate hike to 5.50-5.75% in September versus 26.8% yesterday.
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Originally Posted June 30, 2023 – Market likes what it sees in Apple and PCE price data on last day of second quarter
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