Dell, a leading computer manufacturer, hinders the growth of technology shares.
In the US, the anticipated inflation data painted a favorable picture. This is music to the ears of the Fed and investors. However, Dell's outlook left many tech stocks feeling less than optimistic.
The overall US stock market ended the week with a mixed performance. Encouraging news came from slightly moderated interest rates and an economy that saw yields return to the bond market. On the downside, many technology stocks saw investors pulling back after Dell painted a pessimistic picture and questioned the profit potential of the industry. Just the day before, Salesforce had spooked investors with a disappointing forecast. Additionally, profit taking after this year's strong sector performance could have played a role.
The Dow Jones Index closed the week up 1.5% at 38,686 points, with Salesforce leading the way after recovering a massive 7.5% from the previous day's 20% plunge. The S&P 500 saw a 0.8% gain. Nasdaq indices managed to claw back losses up to 1.7% in a late rally and ended with minimal change. At the NYSE, 2,169 winners emerged (Thursday: 2,130) while 666 stocks saw losses (658). Forty stocks remained unchanged.
Anticipated by the market, the PCE price index, a personal consumption expenditure measure favored by the US Fed for monitoring inflation, showed a 2.7% (previous month: 2.7%) increase in year-on-year inflation, as expected by economists. In terms of monthly growth, the PCE price index rose 0.3% (0.3%) in April, meeting expectations.
Things that would help fuel the hopes for imminent interest rate cuts included the fact that personal spending in April was significantly below expectations, which signals cautious spending. The Chicago Consumer Sentiment Index, which fell unexpectedly in May and moved further away from the expansion threshold, offered more support. Even though central bankers in the US had recently dampened expectations of immediate interest rate cuts, the unexpected drop in inflation and the sluggish US economy could give a small boost to the hope for lower rates.
Dollar sees a mild dip following inflation release
The dollar held relatively steady in the foreign exchange market after the release of inflation data. The dollar index fell 0.1%.
The bond market also saw a minor shift after yesterday's losses. The yield for a 10-year bond dropped by 5.1 basis points to hit 4.50%.
The price of oil fell even further after yesterday's heavy losses. Traders expressed concerns ahead of the OPEC+ conference on Sunday, during which the organization would need to decide whether to extend production cuts. A surprising increase in US crude oil inventories the day before exacerbated the issue.
In terms of individual stocks, Dell experienced a 17.8% tumble. CFO Yvonne McGill spoke of potential margin pressures for the current quarter. This pressure would be due to increasingly fierce competition for large corporate customers and an inflationary cost environment that includes higher NAND and DRAM memory prices. Investors, however, were especially disappointed by the prospect of a shrinking net margin.
On the upside, Gap soared 29% when the company's first-quarter sales exceeded expectations. The outlook for the fiscal year was also improved.
Boeing climbed 2.8% after developing performance targets at the request of the US aviation authority FAA. The FAA will use these targets to evaluate whether the quality improvements by Boeing are successful. Boeing officially presented its plan on Thursday. After a 737 Max panel fell off during an Alaska Airlines flight in January, the FAA tightened its supervision of the company.
Finally, Trump Media & Technology Group saw its stock drop by 5.3% after its founder and former US president, Donald Trump, was found guilty in all charges regarding defamation in a jury trial.
