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BAD NEWS IS GOOD NEWS AGAIN
The S&P 500 and the Nasdaq Index recorded strong gains, breaking a string of seven consecutive weekly declines. Every sector in the S&P 500 advanced, with consumer discretionary and energy stocks performing especially well. Markets seem to reflect optimism that inflationary pressures could be peaking. Indeed, the core personal consumption expenditures (PCE) price index, which excludes food and energy, ticked up 0.3% in April, in line with expectations and little changed from the preceding three months. Meanwhile, the minutes from the early-May FOMC meeting contained few surprises, with all members voicing support for 50-basis-point rate increases over the next few meetings in an effort to bring interest rates to a neutral level that neither inhibits nor stimulates economic growth. Last but not least, US Macro data have disappointed for 6 straight weeks with May set to see the biggest plunge in reported data relative to expectations since the collapse in April 2020. But it appears that bad news was seen as good news once again: the US 10- year U.S. Treasury yield traded lower and US stocks soared. In Europe, shares rose as confidence grew that inflation may be peaking and as central banks signaled that interest rate increases are likely to be gradual. Chinese markets weakened amid concerns over slowing growth exacerbated by the government’s zero-tolerance approach to the coronavirus. The dollar weakened while cryptos tumbled. WTI Oil hit $115.
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US stocks recorded modest gains over the shortened trading week (markets were closed on Wednesday), with the S&P 500 hitting 5,500 intraday for the 1st time ever. The week also saw modest signs of rotation in the market, with value stocks outperforming growth as Nvidia suffered its first down-week in two months. Friday was a so-called triple-witching day, with roughly USD 5.5 trillion in options related to indexes, stocks and ETFs expiring. The start of the week brought some evidence of US economy easing with retail sales signalling less discretionary spending. But data released later in the week suggested that the economy was stronger than indicated by retail sales.