US Stocks Drop, Dollar Jumps As Cautious Sentiment Dominates: S&P 500 On Track To Close Another Week In The Red

Risk aversion prevailed on Friday, with stocks trending lower, Treasury yields climbing and the U.S. dollar being the notable gainer for the session. 

The preliminary estimate of the University of Michigan consumer sentiment gauge saw a sharp drop in May, down from 63.5 in April to 57, well below the expected 63, with long-term inflation expectations surging to the highest since April 2011. 

Cues From Friday's Trading:

The S&P 500 dipped 0.3% on Friday and is down 0.5% for the week, on track to record its second straight week of negative performance. 

The Dow Jones Industrial Average fell 0.2% and is down 1.3% this week. 

The Nasdaq 100 dropped 0.5% but is still up 0.6% this week. 

U.S. Indices’ Performance Friday

Analyst Color:

Following a second inflation reading that confirmed the slowdown in pricing pressure, Chris Zaccarelli, chief investment officer at Independent Advisor Alliance, said the Fed now has the room it needs to take a pause at the next meeting.

The challenges in the banking sector are just the first sign of stress that has been inflicted on the system by the Fed's rapid and aggressive rate hikes, the analyst said.

Zaccarelli sees a recession on the horizon. "We do think investors are being too sanguine about the recession risk on the horizon, but given that we are in the calm before the storm, it is easy to see why so many people are buying stocks as everything looks clear for the moment," he said.

Friday's Trading In Major US Equity ETFs: In midday trading on Friday, the SPDR S&P 500 ETF Trust SPY was 0.3% lower to $410.80, the SPDR Dow Jones Industrial Average ETF DIA fell 0.3% to $332.43 and the Invesco QQQ Trust QQQ was 0.5% down to $324.67, according to Benzinga Pro data.

Among U.S. equity sectors, the Consumer Discretionary Select Sector SPDR Fund XLY undeperformed, down almost 1%, followed by the Financial Select Sector SPDR Fund XLF

Latest Economic Data:

The Bureau of Labor Statistics reported a 0.4% increase in import prices for April, up from a negative 0.8% in March and slightly above expectations of 0.3%. Export prices also surged, up 0.2% after a 0.6% drop in March but in line with expectations. 

The University of Michigan released its preliminary consumer sentiment index for May, showing a sharp drop from 63.5 in April to 57 in May. The year-ahead inflation expectations moved marginally lower from 4.6% to 4.5% while five-year inflation expectations surged from 3% to 3.2%, to the highest since April 2011. 

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Stocks In Focus:

• Tesla, Inc. TSLA dropped 1.5% after Chinese auto regulators recalled around 1 million vehicles to address a brake issue.

• Charles Schwab SCHW rose nearly 3% after it said that client assets rose in April. 

• First Solar, Inc. FSLR climbed 24% after the company acquired Evolar for up to $80 million. 

• Amylyx Pharmaceuticals, Inc. AMLX fell 2% despite the company reporting quarterly revenue that trumped estimates and a surprise profit.

Commodities, Bonds, Other Global Equity Markets:

Crude oil fell 1.5%, with a barrel of WTI-grade crude falling to $70.30. The United States Oil Fund ETF USO was 1.5% lower to $62.31 per share.  

Treasury yields rose, with the 10-year yield rising 6 basis points to 3.45% and the two-year yield up 8 basis points to 3.98%. The iShares 20+ Year Treasury Bond ETF TLT was 0.5% lower on the day. 

The dollar soared, with the U.S. dollar index, which is tracked by the Invesco DB USD Index Bullish Fund ETF UUP, up 0.6%. The EUR/USD pair, which is tracked by the Invesco CurrecyShares Euro Currency Trust FXE, fell 0.5% to 1.085. 

European equity indices closed in the green. The iShares MSCI Eurozone ETF EZU was 0.4% lower. 

Gold fell 0.2% to $2,010/oz. The SPDR Gold Trust GLD lost 0.2% $186.89. Silver dropped 1.1% to  $23.89, with the iShares Silver Trust SLV falling 1.1% to $21.94 per share. Bitcoin BTC/USD fell 1.6% to $26,353. 

Staff writer Piero Cingari updated this report midday Thursday. 

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