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Stocks End Higher as Inflation Data Fail to Dent Investors' Optimism

Stocks end higher Friday and the S&P 500 closes out May with a fourth straight month of gains. President Biden issues a $6 trillion budget proposal.

Stocks finished Friday and the S&P 500 closed out May with its fourth straight month of gains as inflation data failed to dent investors' sentiment on the recovering U.S. economy.

President Joe Biden on Friday issued a $6 trillion fiscal 2022 budget request to Congress. The boost in federal spending would be paid for with tax hikes on corporations and the wealthy.

Biden's proposal likely will have a tough time making it through Congress since Republicans have opposed most of the president's spending plans.

The Dow Jones Industrial Average finished up 64 points, or 0.19%, to 34,529, the S&P 500 edged up 0.08% and the Nasdaq rose 0.09%.

The Dow rose 0.9% for the week and 1.9% in May. Year to date, the blue-chip index has risen 12.8%.

The S&P 500 climbed 1.2% for the week and gained 0.5% in May. The index has risen 11.9% so far this year.

The Nasdaq added 2.1% for the week and slipped 1.5% for all of May. Year to date, the tech-heavy index has risen 6.7%.

The Federal Reserve’s preferred inflation gauge, the personal consumption and expenditures index, rose 0.6% in April, in line with economists’ expectations. 

The core PCE measure, which excludes food and energy, increased 0.7% in April from March -- the biggest monthly jump since October 2001 -- and rose 3.1% year over year.

Personal spending in the U.S. rose 0.5% following an upwardly revised 4.7% increase in March, the Commerce Department said. Personal incomes declined 13.1% in April.

Consumer spending got a boost from Biden's $1.9 trillion American Rescue Plan. Supply-chain bottlenecks added to price increases.

Wall Street has been powered higher by signs of a solid U.S. economic recovery from the COVID-19 pandemic and a Federal Reserve that has provided extraordinary support.

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Economic data on Thursday indicated the employment picture in the U.S. was improving as jobless claims fell to a fresh pandemic low.

The data, as well as initial reports that said Biden was set to unveil a budget of $6 trillion in the coming fiscal year, boosted equities on Thursday, particularly those that would benefit most from increased federal spending.

Biden's plan would amount to the largest spending increase since World War II. The injection of trillions more in cash into an economy already awash with liquidity has investors increasingly concerned about the pace of inflation and its impact on asset prices.

Stronger inflation, investors fear, could prompt the Fed to pull back on its extraordinary support for the U.S. economy.

The Fed, for its part, has been playing down the risk of rising prices, reiterating the view that current inflation levels -- the highest since 2009 -- will slow into the end of the year as base effects fade and supply-chain bottlenecks ease.

Bitcoin prices slid Friday to $35,938, off the cryptocurrency's record of about $64,000 in mid-April.

On Friday, Bank of Japan Gov. Haruhiko Kuroda warned about Bitcoin’s volatility and criticized the token, saying it's "barely used as a means of settlement.”

Cathie Wood, the founder of ARK Investment Management, said Tesla  (TSLA) - Get Tesla Inc. Report CEO Elon Musk and the “ESG movement” were responsible for the recent drop in digital currencies.

Speculative Interest in Equities Continues as Cryptos Take Another Hit

Shares of Costco  (COST) - Get Costco Wholesale Corporation Report fell 2.4% Friday after the warehouse retailer reported a 22% jump in revenue in its fiscal third quarter but also warned of rising costs.  (CRM) - Get Salesforce Inc. Report rose 5.4% after the maker of customer-relationship-management software posted first-quarter earnings and revenue that topped forecasts and raised its outlook for the fiscal year.

Costco and Salesforce are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells the stocks? Learn more now.