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Stocks headed into the long weekend on a high note with all three major indexes posting gains for the week for the first time in a long time. As a a reminder, markets will be closed this Monday, May 30, for Memorial Day.

Boosting investor sentiment today was the latest inflation update, with this morning’s report from the Commerce Department showing that the core personal consumption expenditures (PCE) price index – which excludes energy and food prices – rose 4.9% annually in April. While this pace is still elevated, it’s down from the 5.2% year-over-year rise seen in March. 

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Separate data showed consumer spending was up 0.9% sequentially last month. However, the personal savings – or, savings as a percentage of disposable income – rate fell to 4.4% from March’s 5.0%.

The drop in the savings rate indicates “U.S. consumers are now starting to chip away at those much-ballyhooed excess savings [accumulated during the pandemic], to help pay for the spurt in food and energy costs,” says Douglas Porter, chief economist at BMO Capital Markets. 

But even with that money already spent, there’s still an estimated $2.3 trillion, or more than 9% of gross domestic product, in savings, he adds. “True, they are not well distributed across income cohorts – hence the wildly differing experiences by varying retailers. But, even if just a third of these pandemic savings are spent, this will readily support overall outlays through 2023,” Porter says.

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A round of well-received earnings reports from several tech firms like software maker Autodesk (ADSK, +10.3%), IT solutions firm Dell Technologies (DELL, +12.9%) and integrated circuit specialist Marvell Technology (MRVL, +6.7%) also buoyed the broader markets.

At the close, the Dow Jones Industrial Average was up 1.8% at 33,213, the S&P 500 Index was 2.5% higher at 4,158 and the Nasdaq Composite had gained 3.3% to 12,131. 

For the week, the Dow rose 6.2% to snap its eight-week losing streak, while the S&P 500 (+6.6%) and Nasdaq (+6.8%) held their consecutive weekly declines to seven.

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Other news in the stock market today:

• The small-cap Russell 2000 rose 2.7% to 1,887.
• Gold futures edged up 0.2% to settle at $1,851.30 an ounce.
• Bitcoin did not participate in today’s broad-market rally, sinking 2.0% to $28,779.96. (Bitcoin trades 24 hours a day; prices reported here are as of 4 p.m.) 
• Ulta Beauty (ULTA) jumped 12.5% after the cosmetics retailer said revenue jumped 21% year-over-year in its first quarter to $2.3 billion, while earnings soared 53.4% to $6.10 per share, both figures more than analysts were expecting. “We believe [ULTA’s earnings] clearly demonstrates that beauty spending is recovering strongly as households feel more comfortable in re-engaging in pre-pandemic routines,” says UBS Global Research analyst Michael Lasser (Buy). “Plus, ULTA is executing nicely and gaining share in the process.”
• Red Robin Gourmet Burgers (RRGB) surged 25.1% after the burger chain reported a slimmer-than-expected loss and higher-than-anticipated revenue for its first quarter. RRGB also said same-store sales were up an impressive 19.7% over the three-month period. “We see multiple tailwinds at off-premium and structural efficiencies from [Red Robin’s] menu/labor model that give us confidence in continued momentum through 2022 and 2023,” says Jefferies analyst Alexander Slagle (Buy). “We believe risk/ reward for RRGB at current valuation is among the most attractive at trough multiples relative to category peers, and see tangible drivers of same-store sales upside beyond the near term that have yet to be fully reflected at current levels.”

Is it Too Late to Buy Energy Stocks?

Worried you’ve missed the runup in energy stocks? Several macro catalysts such as sizzling inflation, short-term supply and demand dynamics and the Ukraine war have boosted oil prices in 2022. U.S. crude futures tacked on 0.9% on Friday to settle at $115.07 per barrel, bringing their weekly gain to 4.3%. This helped fuel a more than 8% weekly gain for the energy sector, bringing its year-to-date return to 59.4%. 

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“With commodity prices up and inflation creating waves, is it too late for investors to capitalize on high commodity prices?” asks Lucas White, portfolio manager at asset management firm GMO.

No, the strategist says – for a number of reasons, including the fact that energy sector components are still considered value stocks. “Though commodities are up, resource companies trade at more than a 60% discount relative to the S&P 500, a level that has almost never been seen,” White explains, adding that the recent spike in commodity prices has yet to flow through to companies’ fundamentals – meaning investors can still expect strong returns going forward. 

For those looking to capitalize on the red-hot sector, there are plenty of energy stocks to choose from, including high-yielding master limited partnerships (MLPs). But for those looking for more diversified exposure to high oil prices, may we suggest this list of energy exchange-traded funds (ETFs). The funds featured here sport a variety of strategies that should help investors leverage any additional gains in oil and natural gas.

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