Weekly review
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.
Past week:
During this shortened week, the stock market showed strong performance. The S&P 500, which had approached 4,100 last week, reached a high of 4,290 during Friday's trading. Concerns over the debt ceiling were alleviated after Congress passed a deal, providing relief to the market. The bill now awaits President Biden's signature.
Federal Reserve (Fed) commentary had an impact on market sentiment. Cleveland Fed President Mester stated that she saw no compelling reason to pause rate hikes in June, leading to a 70% probability of a 25-basis points rate hike according to the CME FedWatch Tool. However, other Fed officials, including Governor Jefferson and Philadelphia Fed President Harker, expressed the possibility of skipping a rate hike at the upcoming meeting, causing the probability of a rate hike in June to drop to 25.6%. Despite this, Fed officials maintain that further rate hikes may still be necessary.
Labor and inflation data provided some reassurance to market participants. The May ISM Manufacturing Index showed a decline in new orders but also a positive deceleration in the Prices Paid Index. The May Employment Situation Report revealed an increase in nonfarm payrolls by 339,000, a slight moderation in average hourly earnings growth, and a rise in the unemployment rate.
While mega-cap stocks had been driving the market, this week witnessed a rotation of money into areas that had been trailing. The Invesco S&P 500 Equal Weight ETF (RSP) outperformed the Vanguard Mega Cap Growth ETF (MGK) with a 1.9% increase compared to 2.0%.
Earnings news from retailers was mixed, with notable moves seen in lululemon, Advance Auto, Dollar General, and Macy's after their earnings reports.
The consumer discretionary and real estate sectors of the S&P 500 experienced the most significant gains this week, while utilities and consumer staples had relatively smaller gains.
In the Treasury market, yields fell, with the 2-year note yield dropping by five basis points to 4.51% and the 10-year note yield decreasing by 11 basis points to 3.69%.
On Tuesday, the stock market began the holiday-shortened week with a relatively weak performance. Initially, there was optimism as news broke that President Biden and House Speaker McCarthy had reached a debt ceiling agreement. However, this enthusiasm quickly faded due to uncertainty surrounding the deal's passage in Congress. Lingering doubts about the debt ceiling agreement and ongoing concerns about the economic outlook restrained market activity. The release of the Consumer Confidence Index for May further confirmed negative expectations among consumers. Worries about Federal Reserve policy also came into focus following remarks from Richmond Fed President Thomas Barkin, who maintained a higher rate forecast. Despite these challenges, mega-cap stocks and other growth stocks provided support, leading to the outperformance of the S&P 500 and Nasdaq. Although the S&P 500 briefly dipped below 4,200 during the day, it managed to close above that level.
On Wednesday, the stock market ended the month on a negative note. Uncertainty surrounding the passage of the debt ceiling deal continued to cast a shadow, while concerns about growth and Federal Reserve policy drove market activity. Throughout the day, major indices traded within a narrow range near their lowest levels of the session. However, market sentiment started to improve as investors reassessed the likelihood of a rate hike at the upcoming June Federal Open Market Committee (FOMC) meeting. This shift was prompted by less hawkish comments from several Fed officials, including Cleveland Fed President Mester, who expressed no compelling reason to pause rate hikes. Fed Governor Jefferson and Philadelphia Fed President Harker also suggested the possibility of skipping a rate hike at the upcoming meeting. Despite the afternoon recovery, major indices turned lower before the close, encountering resistance when the S&P 500 retested its early session high. Concerns about global growth, which had initially driven weakness, persisted. Regarding Wednesday's economic data, the weekly MBA Mortgage Applications Index saw a 3.7% decline, primarily driven by a 3% drop in purchase applications and a 7% decline in refinancing applications. The Chicago PMI fell to 40.4 in May, below the consensus forecast of 46.1, following a reading of 48.6 in April. Additionally, the JOLTS Job Openings for April totaled 10.103 million, reflecting an increase from the revised 9.745 million in March.
On Thursday, the stock market initially had a mixed performance but eventually rallied to close near the day's highs. The S&P 500 surpassed the 4,200 level, although the Dow Jones Industrial Average had a minimal gain due to Salesforce's disappointing earnings report. The market gained momentum after positive economic data releases, including the May ADP Employment Change, which showed continued strength in the labor market. Overseas data also provided some relief as China's Caixin manufacturing PMI for May indicated expansion, and the eurozone's CPI moderated in May. Mega-cap and semiconductor stocks led the broad-based gains, with the Vanguard Mega Cap Growth ETF and PHLX Semiconductor Index both rising. Regarding Thursday's economic data, the May ADP Employment Change exceeded expectations, signaling strong job growth but slower wage growth. Weekly initial jobless claims remained below recession levels, indicating that businesses were reluctant to make significant staff cuts. Q1 productivity was weak, while the IHS Markit Manufacturing PMI and ISM Manufacturing Index reflected ongoing contraction. However, April construction spending showed strength in nonresidential spending despite weakness in new single-family construction.
On Friday, the stock market concluded the holiday-shortened week on a high note. Technical momentum and positive reactions to the Senate's fast-tracking of the debt ceiling bill contributed to the market's strength. The highlight of the day was the Employment Situation Report for May, which eased recession and rate hike concerns. Nonfarm payrolls increased, average hourly earnings growth moderated, and the unemployment rate rose slightly. Mega-cap stocks performed well, but the broader market had an even stronger showing. The market-cap weighted S&P 500 reached new highs, and all 11 S&P 500 sectors closed higher. The major indices closed with sizable gains near their session highs, with the majority of Dow Jones Industrial Average components and S&P 500 sectors posting gains. Regarding Friday's economic data, nonfarm payrolls exceeded expectations, and average hourly earnings experienced moderate growth. The increase in the unemployment rate and slight decrease in the average workweek provided some relief regarding concerns about the tight labor market and wage-driven inflation for the upcoming June FOMC meeting.