Stocks started the day on solid footing thanks to an encouraging reading on inflation. However, the main indexes lost steam as the session wore on as investors booked profits on a hot first six months of the year for equities.
Ahead of the open, the Bureau of Economic Analysis said the Personal Consumption Expenditures (PCE) Price Index, which measures consumer spending, was unchanged from April to May. Core PCE, which excludes volatile food and energy costs, was up just 0.1% month-to-month.
Both headline PCE and core PCE were up 2.6% on an annual basis, slower than what was seen in April and in line with economists' expectations.
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The data suggest that the "disinflation process continues, reversing the setback from the first quarter of 2024," says Sonu Varghese, global macro strategist at Carson Group. "It should keep the Fed on track to cut rates at least a couple of times this year, perhaps starting in September."
Futures traders are currently pricing in a 60% chance the Fed will issue its first quarter-point rate cut at its September meeting, up from 45% one month ago, according to CME Group's FedWatch Tool. Odds for a second rate cut at either the November or December meetings stand at 23% and 18%, respectively.
Nike has its worst day ever after earnings
In single-stock news, Nike (NKE) slumped 20% – its worst day ever – after the athletic apparel and footwear retailer reported earnings. While Nike beat on the bottom line in its fiscal fourth quarter, its top-line results fell short of expectations. Additionally, the company expects fiscal Q1 and full-year sales to decline amid continued challenges in Nike Digital and weakness in China, among other headwinds.
NKE was already one of the worst Dow Jones stocks of 2024 heading into today's trading and today's slide only creates a bigger hole for the blue chip to climb out of.
"We doubt many investors will view this as a 'buy the pullback' event, and we think NKE shares are headed for a stay in the proverbial penalty box until new product innovations actually start to manifest themselves and management regains investor trust," said Wedbush analyst Tom Nikic. While Nikic kept an Outperform (Buy) rating on Nike, he joined several other firms in slashing the stock's price target.
Nokia to buy Infinera for $2.3 billion
On the plus side of Friday's ledger was Infinera (INFN), which climbed 15.8% after Nokia (NOK, +1.3%) said it will buy the company for $2.3 billion, or $6.65 per INFN share – a 28% premium to last night's close.
The deal "will consolidate two sub-scale and underperforming competitors in the slow-growth optical networks market and bring to NOK superior technology from INFN, which it aims to leverage in its global sales channels," says Needham analyst Ryan Koontz, who has a Hold rating on Infinera.
As for the main indexes, the Dow Jones Industrial Average fell 0.1% to 39,118, the S&P 500 shed 0.4% to 5,460, and the Nasdaq Composite gave back 0.7% to 17,732. All three indexes closed out the first half with solid gains, and most strategists expect the momentum to continue into July.
July tends to be a strong month for stocks
Indeed, "stocks in July have gained 4.8% on average over the past three calendar years – outperforming all other months," says Mike Dickson, head of research at Horizon Investments.
One reason for this is that stock volume tends to lighten up in July, as many market participants take vacations. "Therefore, new developments (especially surprising ones) may have an outsized impact – and more market-moving power," says Dickson.
Big events worth watching next month include the start of second-quarter earnings session and the next Fed meeting, Dickson adds.
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