To little surprise, the week leading into Memorial Day weekend saw below-average trading volume, but the reduced activity did not prevent the stock market from registering its second consecutive weekly advance. The rally lifted the S&P 500 into the neighborhood of this year's high as the benchmark index gained 2.3% for the week while the Nasdaq Composite (+3.4%) outperformed thanks to relative strength in technology and biotechnology.
The trading week was pretty quiet on the economic front, but a handful of reports that did cross the wires pointed to a potential rebound from the weakness at the end of the first quarter. April New Home Sales (619K, Briefing.com consensus 521K), April Pending Home Sales (+5.1%; Briefing.com consensus 0.6%), and April Durable Orders (+3.4%; Briefing.com consensus 0.6%) beat expectations while the second estimate of first-quarter GDP (+0.8%; Briefing.com consensus 0.9%) and the final reading of the Michigan Sentiment Index for May (94.7; Briefing.com consensus 95.5) were close to expectations, but missed.
Altogether, the economic data released during the past week kept the possibility of a summer rate hike alive. As a result, Fed officials that spoke since last Friday reminded investors that the FOMC is ready to raise rates if economic data does not take a turn for the worse. This message was consistent with remarks from two weeks ago that boosted the probability of a June hike from 8.0% to 30.0%.
Rate hike expectations, as indicated by the fed funds futures market, essentially held their ground throughout the week with the likelihood of a June hike remaining at 30.0%. However, expectations for a hike in July inched up to 62.0% from 55.0% at the end of last week.
The Dollar Index (95.75) enjoyed its fourth consecutive weekly rise, but the 0.4% increase represented the slowest weekly advance during the past month, which saw the index notch a fresh low for the year and climb 4.2% from that low point.
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