Weekly Market Watch

Topics

  • Outlook
  • What's Trending?
  • Key Market Levels
  • What We Are Watching

Outlook

Market Outlook:

This week investors are patiently waiting in anticipation of a Fed meeting, inflation data, and earnings from a few large info tech firms (Oracle and Broadcom). On Friday, the May jobs report showed +272k jobs were added during the month which was almost 100k above expectations. Annual wage growth also came in hotter than expected at +4.1% year-over-year.

It should also be noted from last week that the Bank of Canada (BoC) became the first among the G7 central banks to ease policy, lowering its interest rate to 4.75% from 5%. Then a day later, the European Central Bank (ECB) joined the party by also cutting its key rate for the first time in this cycle, cutting by a quarter point to 3.75% from 4%.

What We’re Watching this Week

The FOMC is widely expected to leave rates unchanged during its June FOMC announcement on Wednesday, but it will provide updated projections on where it sees rates heading in the future. The so-called "dot plot" of FOMC expectations for the interest rate path is likely to shift downward to one or two cuts this year from around three in the March dot plot when it was last updated. Recall the Fed only updates these projections 4 times a year.

Meanwhile, the May CPI report is due out Wednesday morning followed by the May Producer Price Index (PPI) report on Thursday. These numbers follow the April Personal Consumption Expenditures (PCE) prices report late last month that cooled inflation fears for the time being.

Current Bull Market Update (see table at bottom of section):

The current bull market started in October 2022 and has seen the S&P surge 48% in just 19 months. A lot of Wall Street’s top forecasters have been scrambling to bump up their year-end S&P price targets because most had been way too bearish.

Some investors are wondering if the bull market is almost over given how far we’ve come but historical data on bull markets says there is still plenty of room for it to continue.


The below table shows the returns and durations of the previous 10 bull markets which had an average gain of 184% and an average duration of about 5 years. In comparison, the current bull market is up about 48% and is only 1.6 years old.

Here are two other great points that argue for a continuation of the bull market (thanks Sam Ro for these):

  1. Stocks usually go up: Historically, the stock market has been in a bull market about 80% of the time. Even after setting record highs, which the S&P most recently did on May 21, prices tend to continue going up in the months to follow, setting many new record highs.
  2. Earnings growth prospects are positive: Forward earnings are looking up, with analysts continuing to forecast double-digit annual growth through 2024 and 2025. And earnings are the most important long-term driver of prices.

(Thanks to Keith Lerner from Truist for compiling the data.)

Check in on Mortgage Rates (Chart Below)

The average 30-Yr mortgage rate in the U.S. is 7.03% as of 6/5/24, which is below its cycle peak of 7.79% from late last year. Kudos to those that were able to lock it in below 3% back in early 2021!

30-Year Mortgage Rate in the US…

  • All-Time Low (Jan 2021): 2.65%
  • 2023 Peak (Oct 2023): 7.79%
  • Today's Rate: 7.03%


One More Fascinating Chart:

Microsoft, NVIDIA, and Apple are now worth more combined than Chinas entire stock market.


What's Trending?

Meme Stocks

Quick Background - Meme Stocks are once again making headlines this week after shares of GameStop (GME) shot up 30% in early trading Monday (6/3) in response to a weekend Reddit post from Keith Gill, the man who inspired 2021′s meme stock mania. In this case, these meme stock warriors target long positions in a stock that has large amounts of short interest from hedge funds like GameStop, thereby forcing short squeezes by the hedge funds and driving up share prices and making these meme investors a profit.

A Reddit account linked to the meme-stock folk hero was posted for the first time in years over the weekend, with a screenshot showing a $116 million position in GameStop stock. An X (i.e. Twitter) account associated with Gill, with the username “TheRoaringKitty,” was also active Sunday, posting a picture of an Uno reverse card (see screenshot below). The card is used in the popular card game to reverse the direction of play.


In May, the X account became active after years of silence, posting a series of cryptic tweets that launched a rally in meme stocks. That sent GameStop shares jumping as high as $64.83 in intraday trading last month, before falling below $18 less than two weeks later. The stock began rising again last week.

 

Our Take:

While this storyline is certainly fascinating to follow, we recommend steering clear from this trading strategy given it is inherently speculative and risky in nature. According to Brian Portnoy, a financial psychologist, “It just very much reflects herd, performance-chasing behavior,” he says. “One of the core features of modern markets is that they lend themselves to speculation. We’re all attracted to the idea of, ‘Hey, one good decision could create financial independence for me and my family.’ It’s just that, if we look at the odds of that actually happening, if we’re honest with ourselves, in almost every case that’s simply not going to happen,” Portnoy says.


Market Support & Resistance Levels

  • Support to watch for the S&P 500 on the downside: 5,150.


This Week / What We Are Watching

The following economic data is slated to be released during the week ahead:

Monday: --

Tuesday: --

Wednesday: FOMC Meeting Announcement, CPI Inflation data (May)

Thursday: Weekly Initial Jobless, PPI Inflation data (May)

Friday: Univ. of Mich. Consumer Sentiment (Jun. Prelim.)


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Market Outlook & 2022 Recap

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Market Watch - November 30, 2022

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Mid Year Outlook - August 8, 2022

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Market Volatility Update - June 21, 2022

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Market Volatility Update - May 6, 2022

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Content in this material is for general information only and not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

The opinions voiced are for general information only and are not intended to provide specific advice or recommendations for any individual. All performance referenced is historical and is no guarantee of future results. All indices are unmanaged and may not be invested into directly.

 The fast price swings in commodities will result in significant volatility in an investor’s holdings. Commodities include increased risks, such as political, economic, and currency instability, and may not be suitable for all investors.