Weekly review
The Nasdaq Composite closed the week with a small gain, while the S&P 500 closed with a small loss. Mega cap stocks held up the broader market. The Invesco S&P 500 Equal Weight ETF fell 1.1% this week, while the Vanguard Mega Cap Growth ETF rose 0.8%. Lending standards have tightened, and banks expect to tighten standards across all loan categories over the remainder of 2023. PacWest was a losing standout from the bank stocks, falling another 21.0% this week. Angst about the debt ceiling weighed over the broader market. The April Consumer and Producer Price Indices reported continued month-over-month moderation in inflation. Disney was a drag on sentiment on Thursday. Energy, materials, and industrials showed some of the steepest declines, while communication services and consumer discretionary were the only sectors to log a gain. The 2-yr Treasury note yield rose seven basis points to 3.98% this week, and the 10-yr note yield rose one basis point to 3.46%. The U.S. Dollar Index rose 1.4% to 102.71.
On Monday, the stock market had a mixed showing with the major indices closing near their flat lines. The SLOOS release confirmed the market's expectations of tightened lending standards and deteriorating credit quality, causing some initial volatility before the market steadied itself. Mega cap stocks supported index performance, while regional bank stocks started strong before rolling over. The debt ceiling concerns were a distracting factor for the market, with the Treasury Secretary warning of "economic chaos" if it is not raised.
On Tuesday, the stock market traded weaker ahead of the April Consumer Price Index release, but losses were modest. The DJIA and Russell 2000 showed small gains before slipping back into red figures. Economic data was limited to the April NFIB Small Business Optimism Index, which fell to a 10-year low, and some tepid trade data out of China for April.
On Wednesday, the stock market was mixed, with the Dow Jones Industrial Average staying mostly negative, while the Nasdaq and S&P 500 outperformed, supported by gains in mega-cap stocks. Although price action was somewhat tepid, a rebound occurred in the afternoon when the S&P 500 briefly slipped below the 4,100 level. In contrast, the Nasdaq and S&P 500 closed comfortably above unchanged levels. Alphabet (GOOG) was a significant driver of the mega-cap outperformance, rallying amidst the company's presentation at its Developers Conference, which included updates on its AI initiatives. Meanwhile, market participants initially reacted positively to the April Consumer Price Index (CPI), which showed a sub-5.0% reading in two years. However, a closer look fostered uncertainty about the Fed's policy path, with total CPI up 4.9% year-over-year in April, and Core-CPI up 5.5% year-over-year.
On Thursday, the major indices closed mixed, with the underlying market weaker than the index level performance suggested. Growth concerns sparked flight-to-safety buying interest in mega-cap stocks, with Alphabet (GOOG) continuing to rally after its Developers Conference on Wednesday. In contrast, Disney (DIS) reported disappointing fiscal Q2 results that featured a 2% year-over-year decline in Disney+ paid subscribers, leading to a sizable loss in Disney, weighing on general sentiment and causing the Dow Jones Industrial Average to underperform the other major indices. Ongoing pressure on regional bank stocks also loomed over the broader market, with PacWest (PACW) seeing another sharp decline after the company reported a decline of approximately 9.5% in deposits for the week ending May 5.
On Friday, the stock market initially showed positive movement, but the majority of the day saw negative index level price action. A late afternoon bounce prevented major indices from suffering significant losses on a lightly traded day. Mega cap stocks, which had supported the market earlier in the week, saw reversed money flows on Friday, with the Vanguard Mega Cap Growth ETF falling 0.3%. Market breadth showed somewhat mixed action, with decliners having only a slight lead over advancers at both the NYSE and the Nasdaq. S&P 500 sector performance was also mixed, with many sectors closing near their flat lines. The worst performer was the consumer discretionary sector, with losses in Amazon.com and Tesla. Meanwhile, utilities and consumer staples sectors outperformed due to lingering growth concerns. Reviewing Friday's economic data, the April Import and Export Prices showed a moderation in inflation pressures on a year-over-year basis, following suit with earlier reports from the week. The May University of Michigan Consumer Sentiment - Prelim showed weakening consumer sentiment amid concerns about the economic outlook, which may curtail discretionary spending activity and weigh on growth.