S&P 500 gains depsite poor US consumer data, still on course for first weekly loss in six

The S&P 500 seems to have regained its mojo on Friday, currently trading 0.5% higher on the session having advanced from around 4650 to current levels around 4675. The index is still on course to week the day 0.4% lower, however, which will mark its first weekly decline in six.

Big Tech/Growth names are seeing the strongest performance. The S&P 500 growth index is up 0.9% amid 1.3% gains in Apple, 1.0% gains in Amazon, 1.2% gains in Microsoft, 1.8% gains in Alphabet and more than 3.0% gains in Meta Platforms (formerly called Facebook). That’s helping the tech-heavy Nasdaq 100 index (up 0.9%) outperform. But the Dow, often seen as more of a proxy for value stocks, isn’t performing poorly, and is up a respectable 0.4% and back to the north of the 36K level. The VIX has seen a fairly substantial drop of about 1.3 vols and is now back to the levels that it ended last week at under 17.00.

The sense of calm, even optimism, has come despite inflation concerns that have roiled FX and bond markets this week. Whilst it does seem likely the Fed is going to be forced to adopt a more hawkish policy stance in 2022 in order to must prioritise price stability over economic growth the labour market, stocks can rely on the backdrop of strong earnings. Indeed, the earnings season just gone saw S&P 500 companies report their third-highest profit margins on record, despite surging input costs, as companies found it easier to pass these costs onto consumers. In other words, there is no sign just yet that demand in the US economy is faltering from its highly elevated levels, despite increasing inflationary pressures.

But that story may soon change. The headline index from Friday’s University of Michigan Consumer Sentiment survey showed sentiment falling to its lowest in 11 years as consumer fret about inflation. Stocks ignored that data, but they won’t be able to ignore it if October Retail Sales data (out next Tuesday) misses expectations by a wide margin. On the other hand, a strong Retail Sales report for October would be a good sign for corporate bottom lines for Q4 and would likely support equities.

In individual stock news, the main story on Friday was an announcement by Johnson & Johnson that the company is planning on splitting into two businesses, one focused on consumer health care and the other on pharmaceuticals. Shares were up over 1.0% as a result. Meanwhile, news of further stocks sales by CEO Elon Musk weighed on Tesla’s share price, which fell another near 4.0%.