Market Recap Week Ending June 25 (In the blue trunks Fed President Jerome Powell…)

Market Recap Week Ending June 25 (In the blue trunks Fed President Jerome Powell…)

The week in review…Dow +1143 or +3.4%, the Nasdaq +329 or +2.4%, and the S&P +113 or +2.7%. The Dow made back almost all its losses from last week and the Nasdaq and the S&P set new record closes during a big week for all three indices…There seems to be a schism brewing at the Federal Reserve. Fed Presidents Bullard and Kaplan made hawkish comments this week regarding raising interest rates sooner than expected, while NY Fed President Williams and Fed Chair Powell indicated that the Central Bank would not be raising rates any time soon. Next week the market will digest further comments from Williams as well as from Richmond’s Fed President Barkin. Volatility is sure to follow…In the meantime, the economic data continues to be very strong. Initial jobless claims continue to decline but not so fast as to spook the market. The decline in the month over month Core PCE indicator suggests that perhaps Fed Chairman Powell is on to something when he states his belief that inflationary pressures are transitory and will subside as we enter the fall. Next week, other than comments from the various Fed members, Friday’s June jobs number will be the focus with an expected add of 559,000 jobs. Much like initial jobless claims, as long as the print is close to expectations, the market should not react. However, if it is a blowout number, closing in on one million jobs added, the market will decline, believing that asset purchase tapering and interest rate increases are coming sooner rather than later. 

 What we are watching next week… 

Monday – NY Fed President John Williams speaks. 

Tuesday – Richmond Fed President Tom Barkin is interviewed, June Consumer Confidence Index. 

Wednesday – ADP Employment, Chicago PMI. 

Thursday – Initial Jobless Claims, June Markit Manufacturing PMI, ISM Manufacturing. 

Friday – June Jobs Report (expectations +559k), Unemployment Rate. 

Last week’s trading… 

Monday – Dow +587 to 33,877, the Nasdaq +111 to 14,142 and the S&P +58 to 4,225. Another odd day in the markets with ten of the eleven S&P sectors trading higher led by those areas most leveraged to the reopening trade: Energy, Financials, Real Estate and Consumer Staples. Technology was just a hair above even on the day and Utilities was the only sector to trade in the red, down 1.29%. It was an odd day because two Fed Presidents, Bullard of St. Louis, who started the spiral in the indices on Friday and Kaplan of Dallas, both added to hawkish sentiment in their comments today. The 10-year U.S. Treasury yield climbed nearly 5 bp to 1.492% and yet despite all the hawkish interest rate talk, markets surged higher, wiping out all of Friday’s loss on the Dow and S&P and nearly doing the same for the Nasdaq. Full voting member, NY Fed President, John Williams, did strike a more dovish tone when he stated that given how far unemployment is from the Fed’s goal, that interest rates will remain low for the time being. Perhaps those comments overshadowed those of Bullard and Kaplan? Get ready for more volatility tomorrow as Fed Chair Powell speaks…. 

Tuesday – Dow +68 to 33,945, the Nasdaq +111 to 14,253 (record closing high), and the S&P +21 to 4,246. Fed Chairman Powell reiterated his belief that inflationary pressures are transitory in nature and that the Fed will not be raising rates anytime soon. Those comments allowed the markets to soar once again, only today, the growth sectors of Consumer Discretionary and Tech led the charge. Nine of the eleven S&P sectors traded higher with only Real Estate and Utilities trading lower…The U.S. 10-year Treasury yield fell 1.5 bp to 1.478%…GameStop (GME) traded up 9.6% as the company announced that it raised $1.1 billion in a stock sale…. 

Wednesday – Dow (71) to 33,874, the Nasdaq +18 to 14,271 (record closing high), and the S&P (4) to 4,241. A rather dull day in the market saw the Nasdaq and Tech continue their run of success, setting yet another closing record on the index. The Dow was dragged down by poor performances from Caterpillar (CAT) and JPMorgan Chase (JPM) and the S&P finished relatively flat on the day. Breadth was poor, with eight of the eleven S&P sectors trading down, led lower by Materials and Utilities. Consumer Discretionary, Financials and Energy were the top performers. The 10-year Treasury yield inched back up 2 bp to 1.492% on a very good June Flash PMI Markit reading of 62.6, the highest reading of factory activity since October 2009 and better than last month’s 62.1 number. While the Flash Services number dropped to 64.8 from May’s 70.4, that is still the second-best number since October 2009 as well…KB Homes traded down 4.27% post-close after announcing an EPS beat but missing on their revenue numbers. 

Thursday – Dow +322 to 34,196, the Nasdaq +97 to 14,369 (record closing high), and the S&P +24 to 4,266 (record closing high). A bevy of bullish economic data spurred all three indices higher today. The Nasdaq and S&P set new closing highs and the Dow has made up this week more than ¾ of the loss it suffered last week (down 1189 points). Jobless claims were first to hit the tape and continued to thread the proverbial “goldilocks” needle; not too good, not too bad, but just right. Claims were reported at 411,000 for last week, missing expectations of 380,000 but slightly better than last week’s upwardly revised print of 418,000. Next up was Durable Orders which bounced back from a 0.8% decrease in April to a positive 2.3% jump in May. The increase was led by strength in commercial aviation orders as well as new car orders. Lastly, news hit the Street that a $579 billion infrastructure plan had been agreed upon by Congress and the Biden Administration that includes no new taxes. Nine of the eleven S&P sectors traded higher led by Financials and Energy. The two losing sectors were Real Estate and Utilities. Despite the inflationary news, the 10-year Treasury yield was essentially unchanged, up 0.005% to 1.497%…Nike (NKE) reported after the bell and soared 14% on a phenomenal Q2 earnings number that saw them set record North American revenue numbers and raise forward guidance…FedEx (FDX) fell 4% post-close despite beating both their earnings and revenue estimates…The major money center banks received good news in the extended session when the Federal Reserve announced that the institutions had all passed its annual “stress test….” 

Friday – Dow +237 to 34,433, the Nasdaq (9) to 14,360, and the S&P +14 to 4,280 (record closing high).  Although the year over year Core Personal Consumption Expenditure (PCE) number was up 3.4%, the sharpest increase since April 1992, it was in line with expectations. Further, the month over month number was up “only” 0.5% which was better than the 0.6% expectations. May’s Personal Income declined 2% and Personal Spending was flat vs an expected 0.4% uptick. Altogether it led to a consolidation day on the indices apart from the Dow. However, it is important to note that nearly 200 points of the Dow’s increase was attributable to just two stocks; Nike (NKE) +$20 and United Health Group (UNH) +6 (each $1 rise in a Dow component stock is approximately equivalent to a 7-point rise in the index). Nine of the eleven S&P components traded higher but other than Financials (+1.25%) and Utilities (-1.05%), all gains and losses were modest. The U.S. 10-year yield rose 3bp to 1.528%….