Weekly Wrap
Another interesting week, with significant developments across various sectors and economic indicators. Both the S&P 500 and Nasdaq reached new record highs, driven primarily by robust performances in the tech sector. Nvidia's rise to become the world's most valuable company exemplified the strength in technology stocks, particularly those involved in artificial intelligence. The energy and real estate sectors also showed notable gains, reflecting broader market optimism.
Retail sales in May increased by a modest 0.1%, below the forecasted 0.3%, indicating cautious consumer spending amid high borrowing costs and prices. Despite this, household net worth hit an all-time high of $160 trillion in the first quarter, largely driven by gains in equity holdings and real estate. Industrial production showed strength, contributing to a mixed but overall positive economic outlook. However, the labor market remained stable, with ongoing concerns about the potential impact of high interest rates on consumer behavior.
Investor sentiment was buoyed by expectations of potential interest rate cuts by the Federal Reserve. The Fed's decision to hold interest rates steady at 5.25% - 5.5% was seen as a precursor to possible rate reductions later in the year, aimed at supporting economic growth and easing borrowing costs. The CME FedWatch tool showed a 90% chance rates are unchanged after the July FOMC meeting but a roughly 66% chance of being at least 1/4-point lower after the Sept meeting.
The technology sector, especially semiconductor stocks, continued to drive market performance. Nvidia's significant market value rise underscored the dominance and investor enthusiasm for tech companies, particularly those with strong AI components, despite chip names ending the week with some softness (see weekly performance heatmap below). Energy and real estate sectors benefited from the overall positive market sentiment, with investors seeking opportunities in sectors expected to perform well under potential interest rate cuts. Of note, Crude notched notable gains, closing over $80 a barrel for just the second time since April.
All-in-all, markets were characterized by record highs in major indices, driven by strong performances in the tech, energy, and real estate sectors. Economic indicators presented a mixed but overall positive outlook, with retail sales growth slowing but industrial production showing resilience. PCE (Personal Consumption Expenditures) Price Index is the Fed’s preferred yardstick for measuring inflation. We saw annual rates of 2.5% in both January and February before rising to 2.7% in March and April and the latest report is due this Friday.
Major Indices
SPY -0.27%↓
Last week I called for two-way tape in the shortened trading-week-to-come (due to Juneteenth) and we were gifted a ride up and a ride down, all capped-off with an over-hyped, super-grindy Opex with absolutely monster prints you must see in the VL platform. This week I’m cautiously on the hunt for early downside action to some areas of interest but ultimately looking for balance over the upper HVN shown in the anchored profile and continued development at $547 or $542 before PCE on Friday. PCE is sufficiently important to be market-moving and I think it just might be the news the market needs to seek “fair value” and a new auction somewhere else. Right now we’re seeing a broadening out across the market via signs of improving breadth, a pattern I discussed in last week’s stack.
Our interactive Institutional Dollar Index chart for SPY is showing sky-high readings so we know major players are trading big bucks up here. Yes, Opex played a part in the elevated readings but there are enough compelling clues in this stack and the prior stack alone to suggest that “more” is “different” this time and to start hunting a transition in the tone and tempo of the market.
Let’s break down the charts.