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There has been a lot of anxiety all week among traders. Interest rates were rising. The economy appears to be slowing down. Stock markets witnessed greater volatility than in previous weeks.
But Friday produced a big rise in the Dow Jones Industrial Average, small gains for the S&P 500 and small losses for the Nasdaq Composite and Nasdaq 100.
Prices drifted again. Oil prices moved lower.
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When the dust settled, there were only small weekly declines for the major stock averages:
- 0.5% for the S&P 500 after five weeks of gains.
- The Nasdaq Composite also fell 1.1% after five weeks of gains.
- The Dow Jones index fell by 1% during the week. But his gain of 575 points on Friday was offset by a loss of 958 points over the previous three days.
The market was generally higher in May after falling in April for all averages.
Over the course of the year, the S&P 500 rose 10.6%. The Nasdaq rose 11.5%, but the Dow’s gain for the year was only 2.6%.
Anxiety surrounding the bull market
Although the stock market will not collapse, there is anxiety that will not go away. The economy may slow due to higher interest rates affecting businesses and consumers, especially homebuyers.
That’s why one should keep an eye on the iShares 20+ Year Treasury ETF (TLT) . The ETF tracks 20-year Treasuries.
If the price falls, interest rates rise. ETFs fell 7.1% in May, as investors feared the Fed might not cut interest rates at all this year. The ETF fell 3.4% between May 15 and May 30 as concerns about interest rates increased. It rose on Friday amid relief that the important inflation report was benign.
Expect more anxiety this week about just one event: the May jobs report, which will be released on Friday.
The report is the most important economic event of the month, and most economists see the unemployment rate holding steady at 3.9%, with payroll jobs growing by 180,000, up slightly from May.
The weak number in payroll employment will scare off many investors. So do the sudden jump in the unemployment rate and weak numbers in report components such as hours worked and weak hiring in specific areas of the economy, such as manufacturing and construction.
One of the main reasons for concern is that consumers don’t seem excited about the economy they’re actually in, as opposed to the economy all the numbers indicate.
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Food inflation has been stubborn. Income gains have been offset by increased costs, especially insurance and the combination of fixed interest rates on mortgages and cars and higher housing costs.
Initial estimates for US economic growth were downgraded over the past week.
You can see the anxiety in one of the components of Friday Personal consumption expenditures price index report.
The report is closely followed because of what it says about inflation in general. Just as important, it provides details about how healthy Americans’ income is and how they make choices about their spending.
It’s spending that worries economists most because the report delivers what many companies — from auto dealers to clothing retailers to fast-food restaurants — have been saying in earnings calls since last fall: Americans are becoming increasingly judicious in how they spend their money.
They skip the afternoon latte at Starbucks, hunt for sales at the supermarket and fix up the old car instead of buying a new one.
One can see this issue clearly in the housing sales data. last weeks Waiting for the home sales report Sales showed a decline of 7.7% in April alone and 7.4% from a year ago. The report is issued by the National Association of Realtors.
The trade group blamed rising interest rates. Prices and housing supply are also serious problems. Prices and housing supply are intertwined. Boomers with low-interest mortgages are reluctant to move. Younger families cannot move because they cannot afford a home.
Supplies are also limited by the reluctance of many communities to adopt higher residential densities to help make housing more affordable.
The truth is that many sectors of the economy are built on continued American mobility.
More economic analysis:
- Bonds fear inflation
- A key bond market signal is sounding the alarm about inflation
- Fed rate cuts face a major reset due to renewed inflation risks
When Americans move, they buy things for the new home: bookcases, sofas, appliances, lighting, and the like.
They don’t buy at levels that cheer store managers.
Investors may see some of these concerns in the jobs report.
They will almost certainly hear the Fed talk about this during their meeting in Washington, DC, on June 11-12, when the Fed’s rate-making body decides its next move on interest rates.
Before the jobs report there are some additional reports this week. Two noteworthy:
- The Department of Labor’s JOLTS reports, which measure the status of job opportunities and how often people change jobs.
- Challenger-Gray report on layoffs, due Thursday. An indication of whether companies are cutting more employees to address rising costs and other issues. The rate was very low in April and may be the “calm before the storm.” said Andrew Challenger, senior vice president of personalization.
Can you say technology?
The S&P 500 rose 4.8% in May. Among the index’s 11 sectors, technology was the leader, rising nearly 10% in May, mostly due to investor interest in all things artificial intelligence.
Giant Nvidia chip (NVDA) It is up 27% for the month and 121% for the year. They are now up 327% since the end of 2022. HP Inc. is also up. HPQ 30%; And chip maker Qualcomm (QCom) An increase of 23% during the month and 41% during the year.
apple (Camel) It rose by 12.9% during the month. Facebook’s native meta platforms (dead) It rose by 8.5%. Tesla (TSLA) It’s down 2.8% and down 28% this year.
Let’s describe the technology stock market as follows: Excessive uptrend. The market capitalization of the 10 largest stocks in the S&P 500 now represents 34.1% of the index’s market capitalization. In 2018, the top ten companies accounted for only 21% of the index’s market capitalization.
Six of these stocks are technology stocks, representing 29% of the index’s market capitalization alone. At some point, there will be a breakout for technology stocks. If the dot.com crash of 2000 and the 2008-2009 crash are any indication, the crash will creep up on traders and investors.
Facilities put on offer
The second best-performing sector was utilities, due in part to the strong belief that utilities will invest in new power generation facilities and the infrastructure needed to send power to customers.
First solar (FSLR) , a maker of solar panels, was the top S&P 500 stock during the month, up 54% in May alone. It’s up 58% for the year.
Also on the list: Vistra (VST) , which provides energy from natural gas, nuclear, solar, and battery sources. It rose 31% during the month and only joined the S&P 500 on May 7, replacing Pioneer Natural Resources, which was bought by Exxon Mobil. (XOM) .
The energy sector was the weakest sector in the S&P 500 during May, falling 1% during the month, as oil prices surprised many analysts by moving lower. The global oil market appears to be adequately supplied, and demand for gasoline in the United States has declined because gasoline-powered cars are more efficient or because consumers are buying electric cars.
The price of crude oil fell 5.3% in May to $76.99, on top of a 2.3% decline in April. It’s up 7.5% for the year after jumping 16.1% in the first quarter.
In recent years, oil and gasoline prices rose in the summer until mid-September. Be ready.
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