More to Come? | May 28, 2021 | FFS

It was a wild ride this last week that ended lower. Were the losses founded or mere speculation?

Monday S&P 500 0.20% | NASDAQ 0.11%

ISM Manufacturing data came in better than expected at 50.3. 50 marks the line between contraction and expansion. Markets were mixed, but the tone was decidedly negative as the pace of inflation slowing seems to be underwhelming.

Tuesday S&P 500 0.72% | NASDAQ 0.95%

Factory orders came in better than expected. JOLT’s Job openings were practically unchanged. Markets sold off, however. Murmurs are swirling that the Federal Reserve Board (FRB) could potentially lower rates less than three times.

Wednesday S&P 500 0.11% | NASDAQ 0.23%

ISM Services came in below expectation, but still expansionary at 51.4. Services actually represent the vast majority of US economic activity. The weaker than expected services data gave a slight lift to markets to close out the day in the green.

Thursday S&P 500 1.23% | NASDAQ 1.40%

Initial jobless claims remain benign at 221K. Stocks started the day optimistically on the jobs data. That sentiment soured as an FRB member made comments pointing to few, or potentially no rate cuts in 2024.

Friday S&P 500 1.11% | NASDAQ 1.24%

Happy Jobs Friday! Was it ever a good jobs Friday. Unemployment went down, the participation rate went up, average hourly earnings went down, and Nonfarm payroll adds beat expectations. The market rebound was broad with the exception of bonds as rates climbed on the strong jobs data. A strong job report lends itself to the speculation of less rate cuts in the future.

Conclusion S&P 500 0.95% | NASDAQ 0.80%

The job report would have typically been negative as erosion of the market would signal reason for FRB rate cuts. This jobs report signals lower future inflationary pressure (slower wage growth) and a strong job market. The data out last week was encouraging, but led investors to speculate a strong economy would likely cause less stimulus. Rate cuts are still likely and slowing quantitative tightening is still likely to start in the next few months. These factors still lend themselves to a strong 2024.

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After three weeks of loss, the S&P 500 eked out a gain for the week. Is there more to come?

Monday

Markets surged ahead on Monday attempting to make up ground from the last few weeks of declines. The S&P 500 rose .95% on the day. The Nasdaq led the way higher as it rose 1.4%.

Tuesday

Housing ruled the day for the markets on Tuesday. Markets ended the day mildly lower than they began. Elevated home prices (13.9% increase) and reduced new home sales (-5.9%) contributed largely to sentiment on the day.

Wednesday

The Russell 2000 (small cap stocks) led the way in gains for the day (2%). The major indices rose mildly for the day as it was a light economic calendar leading up to Thursday’s jobs data.

Thursday

Economic data was strong on Thursday, but the market reaction was tepid. Core durable goods increased more than expected and last months figure was revised to double the previous estimate. Weekly initial jobless claims data improved and remains under 500K for the fourth week in a row. It reached a post pandemic low of 404K this week.

Friday

Core Personal Consumption Expenditures (PCE) index rose to 3.1% YoY in April. This is the Federal Reserve Board’s (FRB) preferred measure of inflation. It gives us insight into how the FRB may react with rates. Michigan Consumer Sentiment fell to 82.9 for May. These data points led the S&P 500 higher for the day by 0.08%.

Conclusion

The S&P 500 staged a bit of a rebound this week. Between favorable jobs data, durable goods data, and a housing market that is seeing plenty of demand the reflation trade is well under way. The difficult thing will be for it to live up to expectations as it unfolds. This week, however, it did as the S&P 500 managed to gain 48.25 points and is up 11.93% year to date.