Stocks ended the day and the week slightly higher Friday, as investors shrugged off a report showing inflation in the U.S. rising 5%, its fastest pace since 2008. The major stock market averages posted a mixed showing, with the Nasdaq up 1.9% for its fourth straight weekly gain, the S&P 500 showing a 0.4% gain, and the Dow Jones falling 0.8% for the week. The weak reaction in the bond market seemed to reflect agreement with the Federal Reserve's contention that the current burst of inflation is potentially transitory. The benchmark 10-year Treasury yield dropped to as low as 1.43% on Friday before finishing flat at 1.46%, still its lowest level in three months and down nearly 12 basis points this week.
Not only was headline May CPI inflation the fastest in 13 years, core CPI inflation at 3.8% was the highest in 29 years. However, most of the increases are tied to areas involved in eating out and moving around, with year-over-year increases in lodging up 10%, gasoline up 56%, used cars up 29%, and airlines up 24%. The jump in inflation in recent months has largely been a combination of a rebound in commodity prices and other “reopening” areas. While both should prove temporary, inflation could still settle in at rates slightly higher than we’ve seen in recent years.
The big event this week will be the two-day FOMC meeting that will conclude with a policy statement and Jerome Powell press meeting. The central bank is being closely watched to see how its handles signs of inflation and if stays with a view that higher prices are transitory. Other economic reports coming out this week include the latest retail sales report, the producer price index update and industrial production numbers.
Brian Moynihan, Bank of America CEO, stated that transaction volumes on consumers’ debit and credit cards have grown by 20% this year compared to this point in 2019. The only spending category that hasn’t recovered has been travel, which is still down roughly 15% in comparison to 2019. However, the 15% drop is significant progress compared to this time last year.
Another post-pandemic milestone happened last week, with more than 2M people passing through U.S. airport security checkpoints on Friday. That's the first time screenings have reached that figure since March 2020 and represents a huge turnaround for the travel industry. While still losing money, airlines are recalling employees from voluntary leave and planning to hire more pilots later this year.
