The major domestic equity indexes managed to squeak out a small gain on Friday, as a surge in Nike helped the quarter close out on an upswing while concerns over our international trade relations ebbed.

For the quarter, the Dow Jones Industrial Average, the S&P 500 and the Nasdaq all posted gains. The Dow edged up 0.7 percent, the S&P 500 rose 2.94 percent, and the tech-heavy Nasdaq was up 6.33 percent.

The S&P’s major sectors reflected some skittishness over trade. Energy had the largest percentage gains for the quarter as oil prices jumped, and growth sectors such as technology and consumer discretionary stocks had solid gains. But real estate and utilities, considered defensive sectors, also advanced.

On Friday, shares of Nike soared 13 percent to hit an all-time high of $81 after the world’s largest footwear maker reported a return to growth in North America in the last quarter and gave an upbeat forecast for the year.

Nike shares ended the day up 11.1 percent to $79.68, their biggest one-day gain in nearly four years. Nike was the top aid to the Dow and the S&P 500.

The S&P 500 bank sector index ended the day barely changed after earlier touching a one-week high. The Fed reported that lenders cleared the second part of the Fed’s annual stress tests, though the Fed placed conditions on some, restricting Goldman Sachs Group and Morgan Stanley from increasing capital distributions.

Friday’s session reflected momentary relief from trade concerns that rattled the market earlier in the week although the major indexes pared gains in the last hour of trading.

The Commerce Department indicated that consumer spending slowed as the core personal consumption expenditures price index, a measure of inflation, hit the Fed’s two percent annual target for the first time in six years. On several occasions this year, worries of rising inflation and a subsequent economic slowdown have sent stocks tumbling.

However, for the week all three indexes registered losses. The Dow lost 1.26 percent, the S&P 500 fell 1.33 percent, and the Nasdaq shed 2.37 percent. The Dow declined for three straight weeks for the first time in more than two years.

For the month of June, the Dow lost 0.59 percent, while the S&P 500 rose 0.49 percent and the Nasdaq gained 0.92 percent.

On Friday, shares of Vertex Pharmaceuticals Inc rose 15.2 percent, the most on the S&P 500, after rival Galapagos NV’s cystic fibrosis program reported disappointing trial data.

KB Home shares climbed 7.3 percent after the homebuilder’s second-quarter results exceeded Street estimates. The strong results also raised shares of other homebuilders, including D.R. Horton and PulteGroup.

Constellation Brands fell 5.8 percent after the Corona beer maker’s quarterly earnings and full-year earnings forecast missed Street estimates.

Approximately 7.16 billion shares changed hands on the major equity exchanges, as compared to the 7.28 billion share average over the past 20 trading days.

PCE Price Index Rises

Consumer prices accelerated year to date as of May, with one inflation index hitting the Federal Reserve’s 2 percent target for the first time in six years. Consumer prices as measured by the personal consumption expenditures (PCE) price index rose 0.2 percent after a similar gain in April.

In the 12 months through May, the PCE price index surged 2.3 percent, making it the largest increase since March 2012 and followed a 2.0 percent increase in April.

Excluding the volatile food and energy components, the core PCE index advanced 0.2 percent for a sixth straight month. That lifted the year-on-year increase to 2.0 percent, the largest gain since April 2012.

The annual core PCE price index rose 1.8 percent in April. The core PCE index is the Fed’s preferred inflation measure.

The rise in price pressures is unlikely to shift the Fed from its stated path of gradual interest rate increases as policymakers have indicated they would not be too concerned with inflation overshooting its target.

Inflation is pushing higher in part because of a tightening labor market, which is characterized by a 3.8 percent unemployment rate.

Last month’s acceleration in inflation came despite a moderation in consumer spending. The government said consumer spending, which accounts for more than two-thirds of all our economic activity, rose 0.2 percent in May.

Data for April was revised down to show spending rising 0.5 percent instead of the previously reported 0.6 percent jump.

Spending was held back by a decline in outlays on household utilities. Purchases of long-lasting goods such as motor vehicles rose 0.1 percent in May.

Nondurable goods purchases increased 0.4 percent, likely reflecting higher gasoline prices. Outlays on services ticked up 0.1 percent. The slowdown in consumer spending last month was also the result of households increasing their savings.

When adjusted for inflation, consumer spending was unchanged in May after increasing by a downwardly revised 0.3 percent in the prior month. The so-called real consumer spending was previously reported to have increased 0.4 percent in April.

Last month’s flat reading and the small downward revision to April’s data could see a reduction in second-quarter estimates for consumer spending. Growth in consumer spending braked to a 0.9 percent annualized rate in the first quarter, the slowest pace in nearly five years, after rising at a 4.0 percent rate in the fourth quarter.

Consumer spending is being supported by the strong labor market and lower income tax rates which came into effect in January. Data that includes trade, has suggested a surge in economic growth was under way in the second quarter after hitting a soft patch in the January-March period.

Gross domestic product estimates for the second quarter are as high as a 5.4 percent rate. The economy grew at a 2.0 percent pace in the first three months of the year.

Last month, personal income rose 0.4 percent after gaining 0.2 percent in April. Wages increased 0.3 percent.

Savings rose to $482.0 billion in May from $448.0 billion in the prior month. The saving rate climbed to 3.2 percent from 3.0 percent in April.

Nike Helps Send the Markets Higher

Nike’s shares rose 12 percent to their all-time high on Friday after the world’s largest shoe maker saw a major sales rebound in its North America business and forecast strong growth for 2019.

As a result, at least 14 Wall Street analysts raised their price targets following Nike’s better-than-expected quarterly results, with Susquehanna the most bullish, raising its target by $14.

The company’s focus on its digital platform and launch of sneakers, such as Air Max 270 and Epic React, not only helped it fight off competition from German rivals Adidas and Puma, but also helped deliver on its promise of a significant reversal in its home market.

Nike is also gaining on the resurgence of ‘90s fashion trends that is helping boost sales of its classic sneakers. Industry research shows that sneaker sales rose 10 percent globally last year.

Nike shares rose to $79.98 in early trading, adding $13 billion to its market value of about $115 billion. The stock was the top gainer on the Dow Jones Industrial Average.

Sales at its North America business rose 3.3 percent in the quarter after having fallen for most of the year.

The company also said it expects 2019 revenue to be in the high single-digit range, compared with its earlier forecast of mid-to-high single-digit growth. It also announced a $15 billion buyback program.

Nike’s shares are up nearly 15 percent this year. Nike trades at 26.5 times forward earnings.

Wall Street’s sentiment on the stock is bullish, with 21 of the 36 analysts covering the stock rating it “buy”. The median price target on the stock is $81.00, up from $75.00 a month ago.

Crude Prices Up Again

The prices of crude oil increased again on Friday as sanctions against Iran threatened to remove a substantial volume of crude oil from world markets at a time of rising global demand.

West Texas intermediate (WTI) rose 69 cents a barrel to $74.14 and had touched $74.37, the highest since Nov. 26, 2014. The contract was on track to close the week up 8 percent.

Brent rose $1.49 to a high of $79.35 a barrel before easing back to $79.23 a barrel. The contract was on track to close the week up 4.8 percent.

Iran is the fifth-largest oil producer in the world, pumping about 4.7 million barrels per day (bpd), or almost 5 percent of total output, much of it to China and other energy-hungry nations such as India.

The Federal government wants to stop Tehran exporting oil to cut off a vital supply of finance with the idea that the other large oil producers in OPEC and Russia will make up for the deficit. However, the world oil market is already tight with unplanned disruptions in Canada, Libya and Venezuela removing supply.

North American oil stocks have fallen as an outage at Canada’s Syncrude has locked in more than 300,000 bpd of production. The outage is expected to last at least through July, according to operator Suncor Energy.

Outside North America, record demand and voluntary supply cuts led by OPEC have pushed up prices.

Major buyers of Iranian oil, including Japan, India and South Korea, have indicated they may stop importing Iranian crude if U.S. sanctions are imposed. Until then, however, they are buying as much Iranian oil as possible. Imports of Iranian crude oil by major buyers in Asia rose in May to the highest in eight months.

Consumer Sentiment Weakens

Tariffs weakened consumer sentiment during the latter part of June as the economic impact of a trade war becomes more problematic, according to a University of Michigan survey on Friday that also indicated an increase in inflation expectations.

Specifically:

  • Sentiment index was little changed at 98.2 after 98 in the prior month; preliminary reading was 99.3
  • Expectations measure decreased to a five-month low of 86.3 from May’s 89.1
  • Current conditions gauge, which measures Americans’ perceptions of their finances, advanced to 116.5, from 111.8 in May
  • Year-ahead inflation expectations rose to 3 percent, the highest level since March 2015, from 2.8 percent the prior month; preliminary figure was 2.9 percent

While sentiment remains high by historical standards, with survey respondents still upbeat about the job market and incomes, there’s uncertainty surrounding tariffs on certain imports and the threat of more.

The survey showed indicated that households are worried about the future effect of trade tensions on prices and the pace of economic growth in general.

The potential impact of tariffs on the economy was spontaneously cited by one-in-four consumers, with most anticipating a negative effect. The increase in inflation expectations was due both to rising energy costs and the impact of tariffs on goods, according to the survey. The longer-term outlook for prices was more subdued.

Nonetheless, responses indicated an anticipated annual gain of 2.5 percent in incomes, up from 1.6 percent in May and the highest since 2008, according to the University of Michigan.

“While tariffs may have a direct impact on only a very small portion of overall GDP, the negative impact could quickly generalize and produce a widespread decline in consumer confidence and optimism,” Richard Curtin, director of the University of Michigan consumer survey, said in a statement.

“The June survey offers a glimpse into the potential reactions of consumers to rising tariffs and suggests that the timing and size of the loss in confidence could be quick and substantial,” he said.

The index of current personal finances rose to 136 in June from 130, while the gauge of buying conditions for durable goods climbed to a three-month high of 166 from 160. The

Inflation rate over next five to 10 years is seen at being about 2.6 percent, the highest since July 2017.