The Dow Jones Industrial Average (DJIA) climbed 0.25% on Friday despite a pullback in consumer confidence as shown in the University of Michigan’s Consumer Sentiment Index. The index revealed that US consumers are increasingly concerned about long-term inflation rising. The 5-year Inflation Expectations also increased, indicating that the US economy is facing higher price growth than initially expected.
The UoM’s Consumer Sentiment Index for May dropped sharply to 67.4, significantly below the market forecast of 76.0. This was the lowest figure recorded in the past six months, signaling a deterioration in consumer confidence. Additionally, the 5-year Consumer Inflation Expectations rose to 3.1% in May compared to the previous 3.0%.
Federal Reserve (Fed) officials dominated the headlines on Friday as they tried to downplay expectations for rate cuts in 2024 due to the persistent inflation figures. Policymakers such as Bowman, Goolsbee, and Logan expressed their views on the current economic outlook and the need for rate cuts, with most suggesting that it is too early to consider cutting rates.
Despite some concerns, the Dow Jones was the top performing US equity index on Friday, gaining around a fifth of a percent. While half of the equities in the DJIA were in the red, companies like Nike Inc. and 3M Co. showed mixed results. Nike Inc. experienced a decline in its share price, while 3M Co. and McDonald’s Corp. recorded gains.
From a technical standpoint, the Dow Jones set a new peak for the week before settling back below 39,500. The index is currently trading above the 200-day Exponential Moving Average (EMA) at 36,893 and is on track to end a seventh consecutive day in the green with a 2% increase for the week.
In terms of risk sentiment, the terms “risk-on” and “risk-off” play a crucial role in determining the level of risk that investors are willing to take in the market. During a “risk-on” market, investors are optimistic and tend to invest in riskier assets, leading to a rise in stock markets and commodity prices. Conversely, in a “risk-off” market, investors are more cautious and prefer safer assets such as government bonds and gold. Major currencies like the US Dollar, Japanese Yen, and Swiss Franc are considered safe-haven currencies during periods of heightened market risk.
