Rethinking the recent rally
It was an uninspired week following recent market gains as Fed Chair Powell continued to suggest that rates will go higher and investors took profits from recent gains.? The S&P 500 was down 1.4% for the week and the Russell 2000 off -2.9% with the majority of the damage coming during the night sessions.
Week to date returns:
Exposure Night Day Buy and Hold
Large Cap -1.73% 0.34% -1.40%
Small Cap -2.42% -0.53% -2.93%
Tuesday – Following the quadruple witching Friday and Juneteenth holiday, equity markets opened lower and declined further during the day session to kick off the short week with the S&P 500 losing almost 50 basis points and the Russell 2000 off 30 basis points.
Wednesday – Tech stocks led further declines in equity indexes on Wednesday ending the S&P 500 rally that took it to its highest level in more than a year.? The large cap index decline of 53 basis points on Wednesday was tech driven as six out of 11 sectors ended up positive for the day. The small cap index lost 20 basis points as investors attention was on Powell’s report to Congress.
Thursday – Stocks opened lower as investors focused on Federal Reserve Chair Jerome Powell’s second day of testimony to Congress in which he reiterated the central bank’s intention to raise the interest rates one or two times this year. Other central banks announced hawkish decisions on Thursday with the Bank of England raising interest rates by 50 basis points to 5% and Norway and Switzerland hiking their rates as well. Oher economic data points sent mixed signals on the state of the economy. First-time jobless claims in the U.S. rose to 264,000, above estimates and existing home sales unexpectedly rose to 4.3 million in May.? Stocks closed the day mixed with the S&P 500 up 37 basis points and the Russell 2000 down 80 basis points.
Friday – Equities remained in a foul mood heading into the weekend, selling off early and remaining down all day.? Weak PMI numbers out of Germany (and earlier in the week France) resuscitated the recently ignored recession narrative.? The S&P 500 fell -0.7% and the Russell 2000 dropped -1.6%
Next Week
As we head toward the end of H1 next week, markets remain confused with an unusually low VIX (13.44) masking the wide divergence in opinion as to where things are headed.? Inflation data and the Fed will continue to remain front and center as the July meeting is a live one in terms of skipping again or hiking again.