The U.S. Economy Defies Recession Fears As Latest Data Show Stocks Are Soaring

U.S. stocks commenced the trading day with gains on Friday, bolstered by a series of positive economic data indicating a robust state of U.S. consumption and manufacturing. However, Treasury yields rose in response to evidence of persistently elevated inflation.

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The Dow Jones Industrial Average rose by 204 points, or 0.6%, reaching 32,974, while the S&P 500 gained 23 points, or 0.6%, to reach 4,174. The Nasdaq Composite also experienced an increase of 101 points, or 0.8%, reaching 12,799. Notably, the Nasdaq Composite witnessed its largest gain in three weeks on Thursday, primarily driven by a historic surge in the shares of chipmaking giant Nvidia Corp. Conversely, the Dow Jones Industrial Average concluded lower for the fifth consecutive session.

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The stock market's upward trajectory on Friday was driven by positive sentiment in response to a range of economic data demonstrating that the U.S. economy continues to defy expectations of an imminent recession. Notably, Personal Consumption Expenditures (PCE) data revealed a significant rebound in consumer spending during April, with a 0.8% increase, the largest gain in three months. This surpassed expectations of a 0.5% increase, attributed to increased car purchases and higher spending on services.

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Furthermore, durable-goods data indicated a 1.1% surge in orders for U.S. manufactured goods in April, primarily driven by military spending but also accompanied by a notable increase in business investment.

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While the PCE price index showed a 0.4% rise in core inflation in April, exceeding economists' expected increase of 0.3%, traders appeared willing to overlook slightly higher-than-anticipated inflation due to indications of a robust U.S. economy. Recent Gross Domestic Product (GDP) data, released earlier in the week, showed a stronger-than-expected 1.3% growth rate for the U.S. economy in the first quarter.

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Rubeela Farooqi, Chief U.S. Economist at High Frequency Economics, acknowledged that inflation appeared to be moving "in the wrong direction" at the beginning of the second quarter.

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Additionally, the stock market continued to benefit from the momentum generated by a surge in technology stocks on Thursday, driven by Nvidia's optimistic outlook for second-quarter sales fueled by artificial intelligence. Nvidia's shares rose by more than 24%, adding nearly $200 billion to the company's market capitalization, representing one of the largest one-day increases in the history of corporate America.

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Another microchip manufacturer, Marvell Technology, experienced gains on Friday as well, with the company highlighting the emergence of artificial intelligence as a growth driver.

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Market sentiment was also influenced by reports indicating that Congress was nearing a deal to raise the U.S. debt ceiling, although House Republicans had already left Washington ahead of the U.S. Memorial Day holiday weekend.

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While Treasury Secretary Janet Yellen warned of a potential depletion of funds as early as June 1, other projections suggested that the federal government might have until the middle of the month.

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"I think we'll all be able to exhale by mid-June, although it will likely be an increasingly volatile market environment between now and then," stated Kristina Hooper, Chief Global Market Strategist at Invesco. "Once that drama recedes, I think all eyes will be back on central banks."

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