U.S. Stocks Give Back Ground After Early Move To The Upside

(RTTNews) - After moving mostly higher early in the session, stocks have given back ground over the course of the trading day on Friday. The major averages have pulled back well off their highs of the session, briefly dipping into negative territory.

Currently, the major averages are posting modest gains. The Dow is up 41.40 points or 0.1 percent at 39,205.46, the Nasdaq is up 0.57 points or less than a tenth of a percent at 17,859.25 and the S&P 500 is up 5.52 points or 0.1 percent at 5,488.39.

The early strength on Wall Street came following the release of a Commerce Department report showing readings on consumer price inflation in the month of May came in line with economist estimates.

The report said the personal consumption expenditures (PCE) price index came in unchanged in May after rising by 0.3 percent in April, while the annual rate of growth slowed to 2.6 percent from 2.7 percent.

The core PCE price index, which excludes food and energy prices, inched up by 0.1 percent in May after climbing by an upwardly revised 0.3 percent in April.

The annual rate of growth by core prices also slowed to 2.6 percent in May from 2.8 percent in April, in line with economist estimates.

While the data initially generated renewed optimism about the outlook for interest rates, buying interest has waned over the course of the session.

The subsequent pullback by the markets may reflect a negative reaction to a turnaround by treasury yields, which initially moved lower following the release of the data but have subsequently rebounded firmly into positive territory.

Treasury yields have advanced as some analysts pointed out that pace of consumer price growth remains well above the Federal Reserve's 2.0 percent target and suggested the latest data is not likely to convince the central bank to accelerate its plans to lower rates.

"While an improvement from trends earlier this year, the elevated inflation readings in yesterday's revised GDP data indicate persistent pricing pressures," said John Lynch, Chief Investment Officer for Comerica Wealth Management.

"The expected number of rate cuts for this year have steadily declined, but traders continue to ignore the Fed's higher for longer stance," he added. "Since the fed funds rate remains higher than nominal GDP growth, we believe the Fed will need to cut 1-2 times over the next six months. Any hope for further accommodation, absent recession, is likely misguided."

Sector News

Despite the pullback by the broader markets, networking stocks continue to see substantial strength on the day, with the NYSE Arca Networking Index surging by 2.4 percent.

Infinera (INFN) has led the sector higher, spiking by 18.2 percent after the telecom equipment maker agreed to be acquired by Noka (NOK) for $2.3 billion.

Considerable strength also remains visible among banking stocks, as reflected by the 2.0 percent jump by the KBW Bank Index.

Steel, semiconductor and oil service stocks are also seeing notable strength, while utilities stocks have moved to the downside.

Other Markets

In overseas trading, stock markets across the Asia-Pacific region moved mostly higher during trading on Friday, Japan's Nikkei 225 Index climbed by 0.6 percent, while China's Shanghai Composite Index advanced by 0.7 percent.

Meanwhile, the major European markets turned in a mixed performance on the day. While the German DAX Index inched up by 0.1 percent, the U.K.'s FTSE 100 Index dipped by 0.2 percent and the French CAC 40 Index slid by 0.7 percent.

In the bond market, treasuries have come under pressure over the course of the session after seeing initial strength. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, is up by 5.7 basis points at 4.345 percent.