Market pauses after push
- Broad market dips as jobs report tops expectations
- Oil on full boil despite OPEC production increase
- This week: Consumer Price Index (CPI), consumer sentiment
In this market, maybe one out of two isn’t bad.
Despite managing to squeak out a positive May, a sharp Friday sell-off pulled the rug out from under what could have been the US stock market’s first two-week winning streak since the beginning of April.
Last week was typical of the day-to-day volatility traders have become accustomed to, with the S&P 500 (SPX) following Thursday’s 1.8% up day with a 1.6% downturn on Friday, despite a better-than-expected jobs report:
Source: Power E*TRADE. (For illustrative purposes. Not a recommendation.)
The headline: Stocks slump during holiday shortened week.
The fine print: The jobs report typically overshadows other economic releases, but last week’s housing numbers may deserve a little more light. Despite rising interest rates and slowing mortgage demand, the S&P Case-Shiller Home Price Index (released last Tuesday) was up 20.6% year over year—its biggest increase on record.1 But since the data reflect home prices only through March, it will be interesting to see whether the upcoming reports indicate the hot-home trend continued into April and May.
The number: 390,000, the better-than-expected number of new jobs the US economy created in May. Unemployment remained steady at 3.6%.
The move: US crude oil prices climbed more than 4% last week, closing Friday at their second-highest level of the year (above $120/barrel)—even though OPEC and its allies announced a production increase.2
The scorecard: The small-cap Russell 2000 (RUT) lost the least ground:
Source (data): Power E*TRADE. (For illustrative purposes. Not a recommendation.)
Sector roundup: The strongest S&P 500 sectors last week were consumer discretionary (+3.6%), energy (+2.9%), and communication services (+2.4%). The weakest sectors were health care (-1.4%), consumer staples (-0.6%), and financials (-0.3%).
Stock movers: On Thursday Repare Therapeutics (RPTX) +45% to $12.67 on Thursday, Turning Point Therapeutics (TPTX) +118% to $74.59 on Friday. On the downside, Digital Turbine (APPS) -23% to $19.68 on Wednesday, Novavax (NVAX) -20% to $44.76 on Friday.
Futures: July WTI crude oil (CLN2) closed Friday at a new contract high of $118.87/barrel, up nearly 21% since May 10. After hitting a three-week intraday high of $1,878.60 on Friday, August gold (GCQ2) closed modestly lower for the week at $1,850.20. Biggest up moves: July RBOB gasoline (RBN2) +13.3%, July heating oil (HON2) +12.8%. Biggest down moves: July lumber (LBSN2) -10%, July wheat (ZWN2) -9%.
Coming this week
This week’s numbers include:
●Tuesday: Trade Balance, Consumer Credit Change
●Wednesday: Wholesale Inventories
●Friday: Consumer Price Index (CPI), Michigan Consumer Sentiment
Earnings this week include:
●Today: Science Applications International (SAIC), HealthEquity (HQY), Coupa Software (COUP)
●Tuesday: J.M. Smucker (SJM), United Natural Foods (UNFI), Cracker Barrel (CBRL), Dave & Buster's (PLAY), Verint Systems (VRNT), Casey's General Stores (CASY)
●Wednesday: Campbell Soup (CPB), Thor Industries (THO), Ollie's Bargain Outlet (OLLI), Five Below (FIVE)
●Thursday: NIO (NIO), Vail Resorts (MTN), Lakeland Industries (LAKE)
Check the Active Trader Commentary each morning for an updated list of earnings announcements, IPOs, economic reports, and other market events.
Signs of stability?
Despite a late-May bounce, last week’s choppy trading highlighted the ongoing difficulty the market has had gaining traction against a backdrop of rising interest rates, inflation, and concerns about an economic slowdown.
Nonetheless, Morgan Stanley Wealth Management highlighted signs that inflation expectations (and nominal interest rates) are moderating. They also anticipate tailwinds for economic growth that could be the best in more than 10 years, including a tight labor market that could foster wage growth and consumer spending, millennials reaching their higher-spending years, solid corporate spending, and healthy balance sheets for both companies and households.3
Similar to the note sounded in “Stocks spring back but caution persists,” Morgan Stanley pointed out that while the market may not be out of the woods yet, opportunities may emerge in low-valuation stocks—i.e., “growth at a reasonable price.”
1 CNN.com. Home prices rose by more than 20% year-over-year in March. 5/31/22.
2 AP News. OPEC+ alliance boosts oil production as energy prices soar. 6/2/22.
3 MorganStanley.com. How to Prepare for a Late-Cycle Economy. 5/31/22.