Markets were dealt a blow this week, particularly in growth stocks. Will margins prove to be resilient in a higher for longer rate environment?
Monday
S&P 500 0.26% | NASDAQ 0.42%
A fresh month kicked off on Monday sending equities to fresh records. Oil markets continued to climb as Israel and Lebanon traded blows. Technology companies have begun a collaboration to build computers with latest chips, sending the sector soaring yet again.
Tuesday
S&P 500 0.13% | NASDAQ 0.03%
Job openings (JOLTS) came in well above expectations, which contributed to modest gains for the day. Conversations between the U.S. and Israel on a ceasefire with Lebanon were ongoing as oil prices rose further. Jobs data will be released later this week in a test of the strength of the labor market.
Wednesday
S&P 500 0.74%| NASDAQ 0.89%
Concerns about a stalemate in the Middle East dragged equities lower and boosting yields in the treasury market. A risk-off trade sent markets falling as flows left high-flying tech. The Federal Reserve Beige Book noted that persistent inflation could weigh on corporate margins in the near term.
Thursday
S&P 500 0.41% | NASDAQ 0.09%
The Dow Jones (DOW) climbed to a record high, while oil fell on a renewed ceasefire between Israel and Lebanon. Initial jobless claims inched higher ahead of Friday’s Job report. A strong reading in the labor market could influence the trajectory of Federal Reserve Monetary policy.
Friday
S&P 500 2.64% | NASDAQ 4.18%
Job’s day came in much stronger than expected, almost doubling projections. Any probability for a near-term reduction in interest rates was dampened by the news of a resilient labor market. The rotation out of risk-on assets continued with technology experiencing the brunt of the selloff.
Conclusion
S&P 500 2.59% | NASDAQ 4.68%
As we discussed in last week’s market thoughts, the Technology sector has surged in the last 2 months. This week’s data had the opposite effect as value-oriented companies with long-term track records were the notable gainers. Growth versus value stock leadership has begun vying for attention in an interest rate-sensitive environment. While growth-oriented companies are using available cash, the unknown of returns for investors will continue to be under the microscope. Margins could be squeezed within companies investing in infrastructure that hasn’t yet materialized. Markets are balancing the future scale for growth companies against companies traditionally known for their value. This is important going forward as earnings ratios ultimately will drive flows. Too high of prices could deter investors in the short-term.
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