By Yasin Ebrahim
Investing.com – The S&P 500 climbed Friday as investors continued to clamour for technology stocks as falling U.S. bond yields suggests they may be starting to buy the Federal Reserve’s bet that the turn-up in in inflation will prove transitory.
The S&P 500 rose 0.28%, the Dow Jones Industrial Average was down 0.33%, or 113 points, and the Nasdaq Composite slipped 0.37%.
The personal consumption expenditures, or PCE, index, the Federal Reserve's preferred inflation measure rose 3.1% in the 12 months through April.
The sharp uptick in inflation was driven by a boost to demand from the services sector of the economy including air travel, recreation and accommodation as the reopening gathered pace. But this services-led push in inflation will likely fade.
“As demand rotates from the supply-constrained goods sector to the labor intensive service sector, this should help ease inflationary pressures and accelerate employment growth,” Jefferies (NYSE:JEF) said in a note.
Against the backdrop of increasing expectations that inflation could prove transitory, U.S. bond yields slipped, paving the way for growth corners of the market like tech to shine.
Tech was up nearly 1%, as investors digested mostly positive earnings from sector heavyweights including Salesforce.
Salesforce.com (NYSE:CRM) jumped 6% after the enterprise software company reported Q1 results that topped expectations, and raised guidance amid ongoing demand for cloud services that is set to continue.
“The work from home shift clearly accelerated growth prospects, however the longer term trend around cloud is a massive market for cloud transitions and digital transformation initiatives for CRM as the company continues to be front and center on many of these projects in both the public and enterprise sectors,” Wedbush said in a note.
Chip stocks also played a role in the broader rally in tech, with Nvidia (NASDAQ:NVDA) rally more than 5% following it’s better-than-expected quarterly results released earlier this week. Broadcom (NASDAQ:AVGO), Texas Instruments (NASDAQ:TXN) an Analog Devices (NASDAQ:ADI) were up close to 1%.
The day of green for tech stocks came at the expense of cyclicals, with financials, industrials and energy underperforming the broader market.
But cyclicals are up sharply since the start of the year as investor appetite has broadened out beyond tech. History suggest this broadening out in the market is good news for stocks.
"We're not going to see the market crashing if, in fact, investors are broadening out and buying more and more,” Melissa Brown, Managing Director of Applied Research at Qontigo, an index and analytics provider, said in an interview with Investing.com on Friday.
“Market crashes tend to be characterized by a narrow market … a few big stocks going up, while the average stock doesn’t. But that doesn’t seem to be what we’re seeing now, so that is good news,” Brown added.
The short-squeeze on Reddit-linked stocks including AMC, Gamestop, SPCE continued. The Redditors are set to close out the week with a big win as traders betting against AMC Entertainment (NYSE:AMC), GameStop (NYSE:GME), Virgin Galactic Inc (NYSE:SPCE) have lost a staggering $2.8 billion in losses since Monday.
AMC, which has more doubled this week, has inflicted the most pain on short-sellers, who have lost about $1.5 billion, according to data from S3 Partners.