Weekly Market Update

Stocks followed up the best week for the S&P 500 since November 2020 with weakness, as despite OPEC+ raising its oil output targets energy prices continued to rise, and multiple Federal Reserve members poured cold water on the idea that a September pause in interest rate hikes was possible. In addition, good news has become bad news for markets as Friday’s jobs report for May beat expectations (390K jobs added vs. 322.5K estimates) and stocks moved lower on the notion that a healthy labor market provides more runway for the Fed’s tightening of financial conditions. Ultimately, it is probably not surprising that markets were unable to build on last week’s 6.6% rally for the S&P 500 as next Friday features May’s much-anticipated consumer price index (CPI) that is expected to show headline year-over-year inflation of 8.2% (April saw 8.3%). Similar to April, a CPI number above expectations will probably translate to lower markets, but a miss, particularly anything below 8%, will be cheered.

Bear Market Rally Calls Overdone?

“Be fearful when others are greedy, and greedy when others are fearful.” ~Warren Buffet

Last week’s rally has been much maligned, perhaps overly so, as many pundits have chalked it up as just a temporary “bear market rally”. Similar skepticism emerged in April 2020, but the number of articles dismissing last week’s gains is almost double what we saw coming out of the depths of the pandemic (see chart below from SentimenTrader). To be clear, next week’s CPI report will be instrumental in deciding whether markets have bottomed or not, but spikes in such articles have generally preceded bounces and it certainly feels like hating last week’s rally has become a bit too consensus. In addition, the breadth and strength of last week’s rally probably is not receiving enough attention, as per LPL Financial, over 5% moves in just six days after the S&P 500 hits a 52-week low have only occurred four times over the last two decades (March 2020, February 2016, October 2011, and March 2009) and each time proved to be good times to be invested in stocks.

Ian G. Browning, CFA
Managing Director, Investment Strategies | Shareholder