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CHART OF THE WEEK: A Hated Rally
The S&P 500 gained 3.6% over holiday-shortened week, lifting $SPX above 50 days & 100 days moving averages, triggering short coverings. While Fed expectations grew more hawkish and swaps are now pricing +72bp for September, markets seem to be optimistic that the Central Bank can restore price stability without derailing growth.
WEEKLY SUMMARY: Wall Street broke a string of three weekly losses
Stocks broke a losing streak as investors appeared to grow more confident that the market had reached at least a temporary bottom. Indeed, the Fed’s “Beige Book” indicated that price increases were moderating in nine of its 12 districts, as “lower fuel prices and cooling overall demand alleviated cost pressures, especially freight shipping rates.” A midweek decline in oil prices — which briefly hit their lowest level since Russia’s invasion of Ukraine — and a surprise moderation in Chinese PPI seemed to help foster a stock rally as the most shorted stocks surged. Energy shares underperformed while a rally by Tesla helped the consumer discretionary sector to outperform. US economic data released over the week were mixed; the S&P Global measure fell more than expected, to 43.7, the biggest contraction since early 2020. Meanwhile, the labor market appeared to remain on solid footing, with weekly jobless claims coming in much lower than expected (222k vs. roughly 240k), hitting their lowest level since the start of the summer. The 10-year U.S. Treasury yield jumped to its highest level since mid-June on Tuesday. European stocks rose after some countries announced plans to deal with the energy crisis and boost their economies. As expected, the ECB increased its key interest rates by a record 75 basis points. The euro gained slightly against the dollar while the British pound depreciated further before retracing to roughly USD 1.16, a level near the low hit in 1985. Cryptocurrencies soared.
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US equities gave back a portion of the previous week’s gains, as uncertainty over the incoming administration’s policies appeared to continue driving the so-called Trump Trade. Financials and energy shares continue to benefit from hopes for deregulation and merger approvals. Likewise, the price of Bitcoin had surged by nearly a third since the eve of the election, as investors anticipated looser regulation of digital currencies. Conversely, health care shares fell sharply following news that Robert F. Kennedy, Jr., would be Trump’s nominee to head the Health and Human Services Department (HHS). On the macro side, yoy US headline inflation rose for the 1st time since March, from 2.4% to 2.6%. PPI data came in above expectations.