Market Coverage: Friday May 21st Yahoo Finance

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Stock futures rose on Friday, indicating Wall Street was poised for a second consecutive session of gains after a drop in jobless claims sparked a rally, with investors struggling to calibrate a strengthening economy against rising prices.

Markets have been shaken by the prospect of inflation derailing the recovery from the pandemic, and potentially nudging the Federal Reserve to reverse its crisis-era policy sooner than expected. On Thursday, the Dow, Nasdaq and S&P managed to snap a 3-day losing streak on news that workers filing for new unemployment benefits fell to a new COVID-19 era low, their lowest in over a year.

"From our perspective, we do not anticipate that this sharp uptick will translate into a prolonged period of elevated inflation, nor do we believe the Fed is currently running the risk of a policy mistake down the road by not pulling forward its timeline on tapering and rate hikes, as some pundits are suggesting," Brian Belski, chief investment strategist at BMO Capital Markets.

"Nonetheless, there is no doubt that companies are discussing these pricing pressures, and so too are our clients," he added.

On Wednesday, minutes from the Federal Open Market Committee's (FOMC) April meeting fanned investor jitters about the interest rate outlook.

The minutes showed that "a number of participants suggested" that if the economy continues to improve rapidly, "it might be appropriate at some point in upcoming meetings to begin discussing a plan for adjusting the pace of asset purchases," which have currently been taking place at the aggressive rate of $120 billion per month over the past year.

That was enough to rattle the market, with traders confronting the possibility that the recovery might stir up lasting inflation — and prompt a roll-back of the Fed's accomodative monetary policy.

Companies from Procter & Gamble (PG) to Kellogg (K), to Target (TGT) and Home Depot (HD) have cited rising price pressures this year, with consumer and business demand far outstripping supply as more businesses reopen and social distancing restrictions ease.

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