Wall Street advanced in heavy trading on Friday, with the S&P 500 and the Dow Jones Industrial Average closing the book on their best June in generations, ahead of much-anticipated trade talks between Trump and Chinese counterpart Xi Jinping at the G20 summit now underway in Japan.
All three major U.S. stock indexes gained ground at the close of the week, month, quarter and first half of the year, during which time the stock market has had a remarkable run.
The S&P 500 had its best June since 1955. The Dow posted its biggest June percentage gain since 1938, the waning days of the Great Depression.
From the start of 2019, after investors fled equities amid fears of a global economic slowdown, which sent stock markets tumbling in December, the benchmark S&P 500 is up 17.3%, its largest first-half increase since 1997.
Financial stocks led the gains in the S&P 500 and the Dow Jones Industrial Average after the large banks passed the Federal Reserve’s “stress test,” with the Fed giving the companies a clean bill of health. The S&P 500 Bank index gained 2.4%.
Trading volume spiked amid the annual restructuring of the Russell indexes, traditionally one of the largest trading days of the year.
All 11 major sectors in the S&P 500 ended the session in positive territory. The financial, energy and tariff-vulnerable industrial indexes were the largest percentage gainers on Friday.
Shares of Apple fell 0.9% following its announcement that design head Jony Ive is leaving the company. Separately, the Wall Street Journal reported that the iPhone maker would move its Mac Pro production to China from the United States.
Constellation Brands reported better-than-expected quarterly results and raised its full-year guidance due to healthy beer demand, sending its shares up 4.6%.
In economic news, consumer spending rose moderately in May and prices edged higher, implying a slowdown in economic growth and benign inflation pressures, providing the Fed with rationales for a possible interest rate cut in July.
Approximately 10.26 billion shares changed hands on the major domestic equity exchanges on Friday, as compared to the 7.11 billion share average over the past 20 trading days.
PCE Shows Rising Inflation
The Federal Reserve’s preferred measure of underlying inflation showed signs of picking up in May, moving toward the central bank’s goal and potentially raising the bar for an interest-rate cut when policy makers meet at the end of next month.
The Commerce Department reported Friday morning that the core personal consumption expenditures price gauge, which excludes food and energy, rose 0.2% from the prior month and 1.6% from a year earlier.
The annual gain was just above the median estimate in a Bloomberg survey, and the three-month annualized increase advanced to about 2%, a five-month high.
Purchases, which account for much of the economy, rose 0.4% from April, slightly below estimates, following an upwardly revised 0.6% gain in April. Personal income increased 0.5% for a second month, topping forecasts, though wages and salaries climbed at the slowest pace in six months.
While Friday’s figures alone are unlikely to spur the Fed to act one way or another, a sustained flow of positive economic news in coming weeks could persuade policy makers to keep interest rates unchanged, despite pressure from outside the Fed.
Stronger consumer spending and higher incomes should support future growth as the expansion becomes the longest in history in July.
There are other important indicators still to come before the Fed’s next meeting on July 30-31, including employment data and developments from the G20 meetings between the U.S. and China in Japan.
Fed officials in their quarterly forecasts last week lowered their outlook for headline PCE inflation to 1.5% this year and to 1.8% for core PCE prices.
The broader PCE price gauge, which the Fed officially targets for 2% inflation, rose 0.2% from the prior month and was up 1.5% from a year earlier, matching the median estimates in a Bloomberg survey.
Inflation-adjusted spending rose 0.2% for a second month, which was less than estimated, though the April figure reflected an upward revision. The gain in May was driven by new motor vehicles as well as spending on food services and accommodations, according to the report.
The personal saving rate held at 6.1%, matching the lowest since November.
Adjusted for inflation, disposable income rose 0.3%, the fastest pace this year.
Consumer Sentiment Easing
Consumer sentiment eroded in June from an eight-month high on less optimism about the economic outlook in the wake of slower global growth and trade concerns. Households’ long-term inflation expectations also retreated.
The University of Michigan’s final sentiment index came in at 98.2, a number that was slightly above the median forecast in a Bloomberg survey of economists, from 100 a month earlier, a report showed Friday.
The gauge of expectations decreased to 89.3 from a 15-year high in May, while an index of current conditions climbed to 111.9 from 110.
The June expectations figure was higher than the preliminary reading of 88.6 as Trump rescinded a threat to place tariffs on Mexican goods unless the nation did more to thwart illegal border crossings. Nonetheless, angst over the Trump administration’s trade policies and the impact on business activity is a continuing theme.
The Michigan measure of sentiment remains elevated, not far from last year’s peak of 101.4, the highest since early 2004. The decline in June was due to households with incomes in the top third of the distribution, which may reflect concerns about how the trade war will affect their stock portfolios.
Inflation expectations for the next five to 10 years declined to 2.3% from 2.6% in May. The figure compares with a preliminary June reading of 2.2%. Subdued inflation is one of the reasons investors are betting the Fed will lower interest rates this year. Policy makers next meet on July 30-31.
A separate report Friday showed solid gains in personal spending and incomes in May, while inflation appeared to be picking up. Meanwhile, a Chicago-area purchasing managers’ index dropped to a three-year low.
“Most of the June slippage was concentrated in prospects for the national economy, with the unemployment rate expected to inch upward instead of drifting downward in the year ahead,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.
Consumers anticipate slower gains in prices in the year ahead. Inflation expectations for the next 12 months fell to 2.7% from 2.9% in May. The preliminary June reading was 2.6%.
Buying attitudes toward durable goods rose in June to the highest in six months, mainly due to those with incomes in the bottom two-thirds.
Home-buying sentiment improved on the heels of lower mortgage rates and confidence about future incomes.
Fifty-three percent of all households surveyed reported improved finances, and 44% expect financial gains in the coming year.