Bullish Week Fuels Market Surge: S&P 500 Hits New Highs, Nasdaq Records Historic First Half (Weekly Cheat Sheet)

Simply put, this was a week of incredible Bullishness. The major stock indices saw gains, both value and growth stocks performed well, and all 11 sectors of the S&P 500 finished higher.

Mega-cap stocks have also had a good week, as was expected. The Vanguard Mega-Cap Growth ETF (MGK) recorded a 2.0% gain, but what stood out even more was the Invesco S&P 500 Equal-Weight ETF (RSP), which outperformed the mega-cap ETF with a 3.4% gain. This performance was impressive and sparked a lot of interest.

The S&P 500, weighted by market capitalization, surpassed significant milestones throughout the week, reaching above 4,200, then 4,300, and finally settling at 4,450 by the end of the quarter. This was the perfect way to end the month. The Nasdaq Composite, on the other hand, had its best half-year since 1983 with an impressive gain of 31,7%.

The market was very active throughout the week. Here is a brief breakdown:

  • Fed’s key index of inflation rose by 0.3% in the month of May, and 4.6% over the course for the year. This is a slight slowdown from April’s Core PCE Index which was 4.7%.
  • The increase in spending in May was just 0.1%, compared with 0.6% in the previous month.
  • Supreme Court declares affirmative actions in college admissions as unconstitutional. Citing a violation to the Equal Protection Clause under the 14th Amendment.
  • Supreme Court rejects Biden’s plan to forgive student loans, saying that the president must have more authority in order to cancel such large amounts of consumer debts without Congress’s approval.
  • Biden announced that the $42B initiative would provide high-speed broadband internet to every American home by 2030. Each state receives a minimum of $107M and 19 states will receive more than $1B.
  • The US economy grew faster than expected during Q1 at a rate of 2%, up from 1.3% previously reported, which eased concerns about an imminent recession.
  • In May, new home sales jumped 12%, reaching 763K units on an annualized basis, the highest pace in more than a year. This result exceeds the estimates of most economists.
  • The International Agency for Research on Cancer will begin labeling aspartame as a cancer-causing substance next month. Coca-Cola diet sodas use it widely.
  • IBM is planning to buy software company Apptio from Vista Equity Partners for $4.6B. Apptio offers financial and operational IT services to more than 1,500 clients. The deal should close by the end of this year.
  • Lordstown Motors files bankruptcy and then sues Foxconn claiming breach of the funding agreement. RIDE’s shares are down by 87% so far this year.

All the while, the belief was that the American economy would avoid a downturn and that the Federal Reserve’s interest rate increases were nearing completion. This conviction was the driving force behind the interest in purchasing.

This week, it’s important to note that countercyclical sectors like consumer staples (+0.6%) and health care (+0.6%) lagged behind. Utilities (+0.7%) also lagged. Communication services (+0.4%) was the weakest overall sector due to the pressure of a 1.7% drop in Alphabet, which had been downgraded by both Bernstein & UBS earlier in this week.

According to the performance of industries, real estate (+5.0%) was the best performer for the week. Other notable performers included energy (+4.8%) materials (+4.0%) industrials (+3.9%) financials (+2.9%) information technology (+2.9%) consumer discretionary (2.5%).

In the meantime, Treasury markets had a completely different experience. The Treasury market had to absorb the new supply and also take into consideration the bullish stock market activity, which could have led to some asset reallocations. The yield on the 2-year bond rose 13 basis points, to 4.88%. Meanwhile, the yield for the 10-year bond increased 8 basis points, to 3.82%.

Finaly, to celebrate Independence Day, on July 3, the stock exchange will close early at 1:00 pm. ET and will be closed on the 4th of July.

CALENDAR & MOVERS

  • Monday July 3 – ISM Manufacturing PMI (June)
  • Friday July 7 – Unemployment Rate (June)

A week of macroeconomic activity is in store, as the Federal Reserve and European Central Bank are both set to announce their interest rate decisions and update on their respective monetary policy due to the persistent inflation. Popular consensus predicts a quart-point rise in interest rates from the ECB while the Federal Reserve will maintain the status quo.

These crucial meetings coincide with the surge of market optimism that began June. This recent uptrend has resulted in advancements across 10 of the 11 S&P 500 sectors. However, central bank surprises or reports that create anxiety such as the CPI and PPI could dampen the current bullish spirit.

CPI Outlook

The consumer price index report (CPI) will be closely watched as inflation is still a major concern. Economists expect a 0.4% rise in the Core CPI in May, continuing the growth that was seen in April. The annual rate is expected to be 5.3% in May, slightly lower than the 5.5% recorded in April.

The CPI headline, which includes energy and food costs, will likely increase by 4.1% in May. Bank of America says that an increase in the cost of food outside of home is likely to be countered by a reduction in domestic food spending, leading to a slight 0.1% rise in prices. The bank also expects food costs to fall in May for the third consecutive month, due to ongoing decreases in commodity, transport, and grocery store costs. Despite this, food prices are expected to rise due to the high demand and rising labor costs.

BONDS

Inflation is a stubborn problem that central banks must continue to address. In spite of the tightening of monetary policy over the past 12 months, this has not been enough to bring inflation under control. It’s not all doom and gloom. US Core PCE for the month of May aligned expectations with a 0.3% rise, which is a 4.6% rate annualized, slightly lower than forecast. The CME Fedwatch tool shows that market forecasts still indicate an 80% probability of a rate rise at the July Federal Reserve Meeting. The US 2-year yield is also moving closer to the March peak of 5.08 percent. German 10-year yields are also maintaining their consistent range between 2,20-2.55%.

COMMODITIES

Oil & Energy

Brent crude prices rose slightly on Friday. They are now poised to record their first monthly increase for the year, due to an important decrease in US oil stocks. Market anxiety remains despite this. Interest rate hikes could reduce fuel demand. Brent and WTI both are expected to post a monthly increase, however, the quarterly loss is projected to be around 6% and 7 %, respectively. Traders continue to be alert to changes in supply and economic indicators.

Precious Metals & Gold

Investors are anticipating additional Federal Reserve rate hikes, fueled by strong US GDP and employment data. For the first time in mid-March, gold’s price fell below $1900 an ounce, although it recovered some of its losses. Gold’s advantage over financial fundamentals, despite China’s robust physical demand is expected to diminish over the next six-months. Copper experienced a surge in Friday amid optimism about China’s recovery, but is still expected to have its biggest quarterly decline since September due to the weak Chinese economy and potential interest rate increases.

CRYPTOCURRENCY

Bitcoin has fluctuated around $30,000 since Monday. This represents a slight 1% decline. Ether was hit the hardest, losing nearly 3% in value. The SEC flagged problems with the application “format” More information on the decision of BlackRock and other funds interested in Spot Bitcoin ETFs can be found at the “substance” In the coming days, we expect to receive these ETF application.

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