Weekly review
This week, the stock market continued its bullish trend, with the S&P 500 and Nasdaq posting solid gains. The S&P 500 closed above 4,400 for the fifth consecutive winning week, while the Nasdaq notched its eighth straight week of gains. The positive momentum was boosted by Goldman Sachs raising its year-end price target for the S&P 500 to 4,500 from 4,000. Mega-cap stocks like Apple and Microsoft reached new all-time highs, while small and mid-cap stocks lagged behind after a recent surge. The Russell 2000 had the smallest gain among major indices but still recorded the largest monthly gain of 7.2%.
Semiconductor stocks stood out as a strong sector, with the PHLX Semiconductor Index rising 4.2% despite some losses towards the end of the week. The Invesco S&P 500 Equal Weight ETF also saw a 2.5% increase. Most sectors in the S&P 500 closed with gains, with information technology, materials, and consumer discretionary sectors leading the way. The energy sector was the only one in negative territory.
The market rally gained momentum following the release of the May Consumer Price Index (CPI) and Producer Price Index (PPI), as well as the Federal Reserve's FOMC decision and Chairman Powell's press conference. The CPI and PPI reports reassured investors about the inflation trend, leading to the belief that the Fed may not tighten monetary policy excessively. Despite Powell's comments suggesting the need for more rate hikes, market action indicated a growing belief that the Fed might be close to finishing its rate hikes.
The FOMC voted to keep the target range for the fed funds rate unchanged, but the latest dot-plot showed an upward revision in the median projection for the fed funds rate in 2023, signaling the possibility of at least two more rate hikes. The projections for 2024 and 2025 also indicated a "higher for longer" policy rate outlook. Powell mentioned that the July meeting is a "live" meeting but not predetermined.
Overall, market sentiment reflected the idea that the Fed may be nearing the end of its rate hikes or even done with them. The significant gains on Thursday triggered a short squeeze as investors feared missing out on further market gains. In addition to the FOMC decision, central banks such as the ECB and the Bank of Japan made announcements regarding their policy rates. The People's Bank of China also cut its lending facility rate in response to weaker-than-expected economic data.
On Monday, the stock market started off with a slightly positive bias but gained momentum in the afternoon, with the S&P 500 closing at its highest level since April 21, 2022. Mega-cap stocks led the way, and the market also saw a rally in other stocks. The energy sector was the worst performer due to falling oil prices after Goldman Sachs lowered its crude forecasts. Economic data for the day included the May Treasury Budget, which showed a significant deficit driven by higher outlays compared to receipts.
Tuesday's trading was marked by a positive tone, with the major indices closing near their daily highs. The Russell 2000 outperformed, and the positive catalyst was primarily the pleasing Consumer Price Index (CPI) report released in the morning. The report supported the market's view that the Fed may not raise rates in the near term, lowering expectations of a rate hike in July. This belief led to a more pro-cyclical trade, with smaller, domestically-oriented companies performing well. Value stocks also outpaced growth stocks during the session. Regarding economic data on Tuesday, the NFIB Small Business Optimism Survey increased slightly, while the CPI showed a 0.1% month-over-month increase, lower than expected. Core CPI, excluding food and energy, met expectations with a 0.4% increase, driven by higher shelter and used cars and trucks prices. On a year-over-year basis, inflation rates moderated slightly, although core inflation remains higher than desired by the Fed. This data keeps the possibility of another rate hike in July alive.
On Wednesday, the major stock market indices traded within narrow ranges until the highly anticipated Federal Open Market Committee (FOMC) decision and Fed Chair Powell's press conference. The FOMC voted to keep the target range for the fed funds rate steady, but stocks initially declined when the Summary of Economic Projections showed an upward adjustment in the 2023 median estimate for the rate. However, stocks recovered as Powell's press conference began, with his statement that the July meeting is not predetermined for a policy change, indicating that a rate hike in July is not certain. The Dow Jones Industrial Average and the Russell 2000 lagged due to specific factors such as UnitedHealth's warning about rising costs.
Thursday saw a strong day for the stock market, as the major indices opened soft but quickly rallied. Investors reacted positively to a heavy batch of economic data and many stocks contributed to the gains. The S&P 500 crossed above 4,400, and the Dow Jones Industrial Average gained over 400 points. Regarding economic data on Thursday, retail sales showed a modest increase in May, excluding autos. Initial jobless claims remained unchanged, but continuing jobless claims increased. The Philadelphia Fed Index declined, while the Empire State Manufacturing Survey surged. Import and export prices experienced deflation, and industrial production declined slightly. Business inventories rose, and natural gas inventories showed a smaller build compared to the previous week. The Treasury market responded positively to the data, signaling confidence that the Fed may be close to completing rate hikes. The drop in market rates provided support for equities. The strong performance of CAVA Group's IPO also contributed to positive investor sentiment.
On Friday, the stock market closed the quarterly options expiration day on a slightly negative note, but the losses remained relatively small considering the recent significant upward movement. Throughout the session, the major indices fluctuated around the flat lines before experiencing some downside momentum in the afternoon. They ultimately settled near their lows of the day, with the S&P 500 managing to close above 4,400. Despite the preliminary University of Michigan Consumer Sentiment Index for June showing a sharp drop in year-ahead inflation expectations, Treasury yields rose, leading to losses in the bond market. The 2-year note yield increased by seven basis points, while the 10-year note yield rose by four basis points. The higher yields acted as a headwind for mega-cap and growth stocks. The decline in the indices was primarily influenced by mega-cap stocks, although other stocks also contributed to the losses. The Vanguard Mega Cap Growth ETF and the market-cap weighted S&P 500 both experienced declines. Positive earnings and guidance from Adobe, as well as Morgan Stanley naming NVIDIA its top pick in AI and raising its price target, generated excitement in the AI sector. However, this enthusiasm was insufficient to offset the overall weakness in the market, although it still managed to achieve its fifth consecutive week of gains. The economic data on Friday was limited to the preliminary University of Michigan Consumer Sentiment Index for June, which surpassed expectations. The index stood at 63.9, higher than the Briefing.com consensus of 60.2, and an improvement from the final reading of 59.2 in May. However, despite the easing of year-ahead inflation expectations, the majority of consumers still anticipate challenging economic conditions in the coming year.
Past week:
The bulls had a constructive week, with the S&P 500 meeting the technical definition of a new bull market as it closed more than 20% above its October closing low. Although the index briefly climbed past 4,300 for the first time since August, it couldn't maintain that position and settled just below the milestone. Both the S&P 500 and Nasdaq saw gains for the fourth and seventh consecutive weeks, respectively, with money rotating out of mega caps into other areas of the market. The Invesco S&P 500 Equal Weight ETF (RSP) rose, while the Vanguard Mega Cap Growth ETF (MGK) declined. Tesla (TSLA) stood out with a significant 14.2% jump, supported by a charging network deal with General Motors (GM). Apple (AAPL) closed flat after introducing its Vision Pro mixed reality headset. Market participants remained hopeful about the economy, reflected in the outperformance of the domestically-oriented Russell 2000 and strong performance of regional banks. The financials, industrials, and energy sectors performed well, while the information technology and consumer staples sectors saw declines. Labor data, including the weekly initial jobless claims report, and the May ISM Non-Manufacturing Index influenced market reactions. Treasury yields increased ahead of the FOMC decision, and the Bank of Canada surprised with a rate hike.
On Monday, the stock market experienced a softer close following a broad-based rally on Friday. Although there was relative strength from mega cap stocks earlier in the day, the market ultimately settled near its lowest levels. However, there was no significant selling pressure, and losses in the indices were relatively modest. The fade in market performance around 1:00 p.m. ET coincided with Apple's (AAPL) decline after its Worldwide Developers Conference, where it introduced the Vision Pro mixed reality headset. Other mega cap stocks also experienced a downturn. Growth concerns were heightened by the May ISM Non-Manufacturing Index, which fell to 50.3% from 51.9% in April, signaling a slower pace of expansion in the services sector. Weakness in bank stocks was another factor restraining the market, prompted by a report indicating potential capital requirement increases for large banks.
On Tuesday, the market had a decent showing, with the Russell 2000 leading index gains while mega cap stocks lagged behind, impacting the S&P 500, Dow Jones Industrial Average, and Nasdaq. Although the three major indices were initially in negative territory, they rebounded and closed near their highest levels. The broader market exhibited strength, as seen in the 0.7% gain in the Invesco S&P 500 Equal Weight ETF (RSP), while the market-cap weighted S&P 500 rose 0.2%. The Russell 2000 saw a robust 2.7% gain, propelled by strength in regional bank shares and energy stocks. The SPDR S&P Regional Banking ETF (KRE) rose 5.0% and the SPDR S&P Bank ETF (KBE) rose 4.4%, influenced by Goldman Sachs lowering the probability of a recession in the next 12 months. However, Coinbase Global (COIN) shares tumbled after news broke that the SEC is charging Coinbase for unregistered operations as a securities exchange, broker, and clearing agency. There were no significant U.S. economic data releases on Tuesday.
Wednesday's trading session remained relatively positive despite a mixed performance at the index level. While mega cap stocks experienced significant declines, the major indices held up well, demonstrating resilience amidst higher-than-average trading volume. The Russell 2000 continued its winning streak, recording a gain of 1.8%. Several prominent companies, including Amazon.com, Alphabet, Microsoft, NVIDIA, and Apple, faced profit-taking and valuation concerns, resulting in losses for the session. The Invesco S&P 500 Equal Weight ETF showcased relative strength, rising 0.7% as money flowed away from mega cap stocks towards other sectors sensitive to economic conditions. Although the market-cap weighted S&P 500 encountered resistance after reaching 4,299, it only experienced a modest decline of 0.4%. Rising market rates also impacted mega caps and growth stocks, with treasuries seeing increased selling following the Bank of Canada's unexpected 25 basis points rate hike. The economic data on Wednesday revealed a decline in the weekly MBA Mortgage Applications Index, a widening of the U.S. trade deficit in April, a draw in crude oil inventories, and an increase in consumer credit.
Thursday proved to be a decent day for the stock market. In line with the trends of 2023, mega cap stocks initially dominated the market activity, while the broader market displayed some weakness. However, as the day progressed, more stocks joined the upward movements. The performance of mega cap stocks played a crucial role in overall index performance, with Apple, Amazon.com, NVIDIA, and Tesla among the key contributors. The Vanguard Mega Cap Growth ETF experienced a 1.0% increase. The Invesco S&P 500 Equal Weight ETF, which initially dipped 0.6%, closed flat, while the market-cap weighted S&P 500 rose 0.6% and finished near its daily highs. Market participants also reacted to the weekly initial jobless claims report, which revealed the highest level since November 2021, prompting increased buying interest in the Treasury market. The economic data on Thursday included the release of initial jobless claims for the week, showing an increase and continuing jobless claims decreasing, as well as wholesale inventories and EIA Natural Gas Inventories, which both had modest changes compared to the previous readings.
Friday marked a mixed performance for the stock market, concluding an overall constructive week for the bulls. The S&P 500 surpassed the 4,300 level for the first time since August, indicating a 20% increase from the October closing low and meeting the technical definition of entering a new bull market. However, the index couldn't sustain this position and settled just below 4,300 at the session's close. Initially, many stocks contributed to the index gains, with the Invesco S&P 500 Equal Weight ETF reaching a high of 0.4% before ending the day with a 0.1% loss due to several stocks pulling back. As the day progressed, the market followed the pattern seen in 2023, where mega cap stocks provided support to the major indices while the broader market displayed relative weakness. The Vanguard Mega Cap Growth ETF experienced a gain of 0.4% after reaching as high as 1.2%. The shift in market breadth throughout the session also indicated underlying weakness, with decliners outnumbering advancers at the NYSE and Nasdaq. No significant U.S. economic data was released on Friday.