 | AUTHOR: Jason Roque, CFP®, APMA®, AWMA® TITLE: Investment Adviser Rep – CCO TAGS: S&P 500, NASDAQ, ISM, FRB, Rates, Oil, Jobs |
There was green on the screen to end the week. Has the storm passed or is something brewing ahead?
Monday S&P 500 0.20% | NASDAQ 0.09%
ISM Services PMI came in softer than expected, but still expansionary. Factory orders increased 0.4% but missed the expected growth rate of 0.8%. The attention has already shifted to next week’s events that will impact interest rates–the Federal Reserve Board’s (FRB) meeting Tuesday and Wednesday and inflation data due out Tuesday. It should be a slow week for markets in the lead up.
Tuesday S&P 500 0.24% | NASDAQ 0.36%
In a day where little economic data was released, markets eked out a gain. Volatility has been down and today’s numbers reflect it again. Short-term rates slipped as two- & ten-year rates both advanced.
Wednesday S&P 500 0.38% | NASDAQ 1.29%
Energy markets advanced as inventories unexpectedly fell. Equities took a breather after a recent rally. The interesting thing was that small-cap stocks advanced on the day. This is a vote of confidence for the avoidance of a recession. Typically, small cap stocks will underperform during a recession. Given the heavily publicized potential for a recession, loading up on small caps would be counter intuitive. This move brings hope that investors are seeing recession risks as minimal.
Thursday S&P 500 0.62% | NASDAQ 1.02%
Higher than expected initial jobless claims led to a little bit of a risk on rally for markets. It also caused short term rates to slip. Higher jobless claims are a signal that the elevated rate environment established by the FRB is having the expected effect. A risk on rally brought the S&P 500 into a technical “Bull Market”. This is marked by the index increasing 20% from the recent low, which was put in October 2022.
Friday S&P 500 0.12% | NASDAQ 0.16%
Markets were little changed on Friday, as the S&P enters day two of being in a “Bull Market”. The move higher was led by tech positions, leading to an outperformance by the NASDAQ.
Conclusion S&P 500 0.39% | NASDAQ 0.14%
The expectation from investors is that the FRB meeting will be uneventful as they should leave rates unchanged. This could lead to strong equities over June-July, but it could also lead to more consumer spending, resulting in inflation. While there is little expectation of a rate hike in June, July is more precarious. Strengthening equities and stronger inflation figures could lead to FRB action. If the jobless rate were to increase, that would be a driver to keep the FRB at bay. Should they restart hikes in July, however, expect volatility in late summer.
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