U.S. stock markets posted slight gains in May, despite growing concern about a summer interest-rate hike by the Federal Reserve that made the last day of trading unpredictable.
The Dow Jones Industrial Average fell 0.5% on Tuesday, paring most of May's gains. The S&P 500 was down 0.1%, though still up 1.5% for the month, while the Nasdaq rose 0.29% over the session, for monthly growth of 3.4%. Volatility spiked 12% in the final day of trading for the month.
Consumer stocks were lower as a report suggested spending over the month could pull back from April's highs. Consumer confidence in May fell to the lowest level since late 2015, slipping to 92.6 from 94.7, as the outlook for business conditions and the U.S. jobs market slightly weakened, according to the Conference Board.
Earlier in the session, data showed that consumer spending in the U.S. jumped 1% in April, the biggest increase in nearly seven years, according to the Commerce Department. Strong demand for new cars and trucks and higher fuel prices led gains. Economists had expected spending to climb 0.7%. Incomes rose 0.4%, the third increase of the year, while the savings rate slipped to 5.4% after reaching its highest level since 2012 in March.
"The overall tone of this report was very constructive, and the solid rebound in spending will likely be interpreted at the Fed as a key indication that the economic recovery has regained its footing after the missteps over the past three quarters," said Millan Mulraine, deputy chief U.S. macro strategist at TD Securities.
The two data sets pulled markets in opposite directions with discretionary spending stocks the worse for wear. Dow components Nike (NKE) - Get Report , and Home Depot (HD) - Get Report were both lower.
The probability of a June rate hike now stands at 21%, according to CME Group Fed funds futures. Chances were less than 10% at the beginning of the month. The likelihood of an increase spiked halfway through May when the release of the minutes from the Fed's April meeting indicated most members would be comfortable raising rates again sooner rather than later.
Crude closed the month with gains of nearly 7%. Oil briefly recovered a level above $50 in May as reductions to U.S. crude production alleviated a supply glut and fuel demand picked up. Crude has closed higher for four straight months. Oil prices fell 0.8% on Tuesday to $48.92 a barrel.
U.S. home prices rose in March as constrained supply hindered robust demand. Prices increased 0.9%, up form 0.7% a month earlier, according to the S&P Case-Shiller Home Price Index. Economists had expected prices to increase 0.8%.
Economic activity in the Chicago area returned to contraction territory in May, according to the latest Chicago PMI data. The gauge fell to 49.3 in May, its lowest level since February. Chicago PMI has contracted six times in 12 months.
This week, shortened for U.S. markets by the Memorial Day holiday, is jam-packed with economic data, including the ISM manufacturing index on Wednesday, and international trade and the U.S. jobs report for May on Friday. The European Central Bank will conduct a monetary policy meeting with an announcement set for Thursday.
Walt Disney (DIS) - Get Report was a major drag on the Dow after a disappointing weekend at the box office. The movie studio's Alice Through the Looking Glass generated just $34.1 million in domestic ticket sales, well below consensus of around $60 million. It's a rare miss for Disney, which blew analysts' expectations out of the water earlier in the year with the outsized success of The Jungle Book.
SodaStream (SODA) - Get Report rose 6.2% after announcing a new home beer-brewing system which will first launch in Europe. The homemade soda company has partnered with light beer brand Blondie to give consumers the ability to create homemade beer from a concentrate pod and sparkling water.
Celator Pharmaceuticals (CPXX) surged 72% after Jazz Pharmaceuticals (JAZZ) - Get Report agreed to pay $1.5 billion for the cancer-treatment biotech company. Jazz will pay $30.25 a share for New Jersey-based Celator, nearly double its Friday close. The deal provides Jazz access to Celator's pipeline drug to treat leukemia.
Medtronic (MDT) - Get Report moved lower by 1.5% despite topping fourth-quarter estimates on its top- and bottom-lines. The medical technology company earned an adjusted $1.27 a share in its recent quarter, a penny above estimates, while revenue jumped 4% to $7.6 billion. Medtronic expects full-year earnings of $4.60 to $4.70 a share in fiscal 2017.