The market trading the first week of the month was a brief one; however, it ended up being a long disappointment, as the major indexes couldn't follow up on the previous week's impressive gains. Instead, they succumbed to a renewed interest in selling that resulted from worries regarding the outlook for the economy and the outlook for companies' earnings, and the stance on monetary policy.
The crude oil market played a significant role in the last few days. They fluctuated between an intermediate low and a high prices in response to an early-week decision of the European Union to block 90 percent of Russian crude imports until the end of the year and the subsequent decision of OPEC+ to boost its production market growth goals in July and August. They were expected to increase by 0.432 million barrows per day; however, OPEC+ decided to add to the figures and set a new target of 0.648 million barrows per day.
The OPEC+ agreement seemed good on paper; however, crude oil traders saw it insufficient to meet the market demands due to China's opening up trade activity and the European Union sanctions against Russian oil. The West Texas Intermediate (WTI) crude futures began on the first day of the week trading at $115.07/bbl; however, the price was hit $120.31/bbl and had reached its highest levels since March.
The rise in crude oil prices is expected to reflect gasoline prices, resulting in an additional financial burden for consumers. This understanding has contributed to concern about the market and economic growth, as did some harsh comments from prominent CEOs and some hawkish comments from the voting FOMC members.
Notably, JPMorgan Chase CEO Jamie Dimon declared that he expects the possibility of an "economic hurricane" coming. Even though the outlook market is optimistic now, JPMorgan Chase will be cautious about its balance sheet. On Friday, in a statement, Tesla Chief Executive Elon Musk declared that he had a "super bad feeling" about the economic situation. Tesla must cut around 10 percent of its workforce and stop hiring.
Federal Reserve Governor Waller was also able to kick off the week by saying that he backs the idea of an above-expected interest rate hike rather than the current interest rate policy by the close of this year. Fed Governor Brainard also echoed that it's challenging to imagine the Fed pausing its rate hikes in September. Cleveland Fed President Mester reflected this attitude on Friday by saying she does not see any "economic hurricane," but she believes that the chance of recession is increasing.
In all the heated talking, we are already into June, and the Fed Funds rate is just 75 basis points. In essence, the Fed Funds free money is available to those who have access. Regardless, the year-over-year S&P 500 market return has fallen to negative territory once again - This is how we know there is a sign that something is coming.
Powell is likely to change direction once more, and it will occur in the second quarter of this year. I am convinced that we will be able to see it in September, at the earliest. There is a good chance of expansion and stimulus in the Fed's balance sheet, and I think we will also see a reverse obviously, in the Fed Funds interest rate policy.
This could benefit market(s) in the short term. However, we will eventually be forced to pay the piper in the long run.
The market economic data from this week did not confirm the recession-related view. Overall, it provided a glimpse of an economy performing well but began to feel the pressures of rising inflation and supply chain problems.
Confidence in the consumer sector was better than anticipated in May, though lower than in April. The Manufacturing Index of the ISM for last month was more decisive than predicted and expedited from April, while its employment component slipped into the contraction zone. The Fed's Beige Book stated that most Federal Reserve districts showed slight or mediocre growth and that retail contacts reported some are chilling among the vast majority of consumers. Nonfarm payroll gains in May were much higher than expected; however, retail trade fell by 61,000. The Non-Manufacturing Index of the ISM for May slowed down from April with a decline in most business activity.
In the mix with economy data of this week, there was a mix of earnings announcements highlighted in part by Salesforce, Inc. increasing its FY23 outlook for profit and Microsoft cutting their fiscal fourth quarter (Q4) earnings estimates due to an adverse change in the foreign exchange rate.
The market was able to extinguish Microsoft's warning on Thursday, realizing that it was not an issue of operation. But the rebound-oriented bias was snuffed out on Friday due to Elon Musk's remarks and the employment report for May, and Morgan Stanley stating that it believes its quarterly forecasts for the growth of Apple are at risk due to the slowing growth rate for Apple's App Store.
The mega-cap stocks were strong performers during the week, but this position was tarnished on Friday, as evident by the 2.6 percent drop within the Vanguard Mega-Cap Growth ETF (MGK), which left that MGK ETF down 0.7 percent for the week.
Each S&P 500 market sector closed on Friday with losses other than the energy sector. The energy sector with a +1.2 percent gain was the sector that performed best, closely followed by information technology posting +0.04%, and consumer discretionary were unchanged. The weakest links within the sector were in the health care with -3.1 percent and real estate with -2.2 percent losses. The financial sector posted -2.1 percent, and consumer staples with -1.7 percent also had negative results.
The U.S. Treasury Ten-year note yield closed the week, gaining 20 basis points to close at 2.94 percent, while the Two-year note yield rose 21 basis points to conclude the week with a 2.67 percent closure. The U.S. Dollar Index increased by 0.5 percent to finish at 102.17 - The indices numbers were as follows:
Dow Jones Industrial Average: -9.5% YTD
S&P 500: -13.8% YTD
Russell 2000: -16.1% YTD
Nasdaq Composite: -23.2% YTD
Silver and gold climbed on Thursday and Wednesday following a slight decline during the week. Despite being affected by the holidays, the trading was comparatively calm, including Memorial Day in the U.S. on Monday and The Queen's Jubilee closing in London Thursday and Friday. For the week, gold fell $2 from the previous Friday's closing price to trade at $1851. Over the same time, the silver price dropped 19 cents, closing at $21.91.
Despite a bearish sentiment in the crypto market, strategists at central U.S. investment bank JPMorgan are upbeat about bitcoin. According to the bank's strategists, bitcoin is currently heavily undervalued and is waiting for a solid rebound in its price. In particular, bitcoin has been struggling lately to regain the psychological barrier of $30,000.
In a recent report, the bank's investment gurus write that bitcoin's actual value currently stands at $38,000 (36,100 euro). In addition, it casually lets us know that bitcoin has taken the place of real estate in their portfolio for alternative assets.
"The past month in the crypto market looks more like capitulation than anything we saw in January and February. We see a lot of upside potential for bitcoin and the crypto market in general", the analysts said in the report published on Wednesday. The report also focused on the macroeconomic environment in which bitcoin is moving.
This article was printed from TradingSig.com