Dow and S&P Close at Record Highs Despite Consumer Spending Drop

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Stocks turned mostly higher on Friday, with the S&P 500 closing at a record for the 14th time this year and the Dow at a new high, despite an unexpected slowdown in consumer spending in April.

The Dow Jones Industrial Average finished the session 18 points ahead at 16,717.17, topping its May 13 record, while the S&P 500 rose 3 points to 1923.57. But the Nasdaq lost 5 points.

"People are still struggling with their incomes and cautious with their businesses. Ironically the market is hitting new highs here on some rather disappointing numbers; GDP yesterday was pretty miserable, but we talked our way through it because of inventories," said Bruce McCain, chief investment strategist at Key Private Bank, referring to a lack of an inventory buildup.

The Reuters/University of Michigan survey of consumer sentiment came in at 81.9 in May, lower than the consensus estimate of 82.4.

Figures from the Commerce Department showed household purchases falling 0.1 percent last month in the first decline in a year, following a revised 1-percent rise the prior month, the strongest since 2009. Incomes increased 0.3 percent, as expected, but inflation is creeping up as a price index for consumer spending increased 0.2 percent last month after rising by the same margin in March.

The economy is not ready to "break out and do a lot better and not weak enough where we are going into a recession and a down cycle where we can expect to buy stocks a lot cheaper. It's a tough time for anybody who wants to invest at this point, but sitting on the sidelines is not the answer either," McCain said.

Express stock declined 7 percent after the retail chain reduced its yearly profit outlook; Lions Gate Entertainment fell 11 percent, a day after the film studio reported quarterly results below expectations.

After dropping to lows not seen since last summer, the yield on the 10-year Treasury note used in determining mortgage rates and other consumer loans climbed 1 basis point to 2.474 percent; the dollar declined against the currencies of major U.S. trading partners.

The 10-year yield yield is "signaling economic weakness that isn't yet obvious; we think it's more a matter of supply and demand," said McCain.

Crude-oil futures for July delivery fell 87 cents to $102.71 a barrel, and gold for August delivery declined $11.10, to $1,246 an ounce.