Key Takeaways
- Debt Ceiling Negotiations Continue
- Tech Stocks Stay Strong
- Fed Members Speaking This Week
As we head into the last full week of May, it’s become a tale of two markets. While the S&P 500 gained over 1.5% last week, the Nasdaq Composite doubled that with a gain of 3% as market leaders tallied impressive gains. Regional banks also turned in a strong week following what continues to be a turbulent year in the sector.
Amazon, Facebook, Google, Nvidia and Tesla all tallied gains of 5% or more last week. Those gains helped push the S&P 500 right up to the 4200 resistance level I’ve been discussing. The question now becomes whether or not stocks can break through 4200 and if stocks in sectors outside of technology will join the party.
As I mentioned, regional banks also notched gains last week. The S&P 500 Regional Banking Index was up 8%. I don’t know if that is a sign the sector is rising from the ashes like a Phoenix or if it’s a case of attention shifting to debt ceiling negotiations and regional banks operating out of the spotlight. Regardless, this is a sector I’m continuing to monitor closely but the strength is certainly a good sign.
Speaking of the debt ceiling, investors are getting a front row seat to how the sausage is made and it’s not pretty. On again off again negotiations continued over the weekend without any agreement on a deal. What I find most interesting about this is that markets continue to seem unconcerned. The VIX is sitting below its historical average of 18, suggesting very little fear at the moment. If there is a place where we might be seeing effects of debt ceiling negotiations, it’s with respect to interest rates. After a near 100% certainty the Fed would sit tight in June, the probabilities of a quarter point hike reached nearly 40% last week. As of this morning; however, those probabilities are back down near 20%. It will be very interesting to see where expectations settle after a deal on the debt ceiling is reached.
Investors looking for some insights as to what the Fed will do next will have ample opportunities this week. Members of the Fed are scheduled to speak every day except Friday. On Wednesday, minutes from the May meeting will also be released and certainly dissected for hints as to what members are thinking. We’ll also get economic data throughout the week with the headline being Thursday’s Personal Consumption Expenditures (PCE), which is the Fed’s preferred gauge on inflation.
Aside from economic data scheduled for this week, we also have more earnings. After the close today, we’ll hear from Zoom. Tomorrow before the open, Lowes is scheduled to report. That will be followed by Nvidia on Wednesday after the close and then Best Buy before the open on Thursday. Shares of Nvidia have more than doubled this year and it will be very interesting to hear what the company has to say. I’ll also be curious to hear if Lowes and Best Buy are seeing similar trends as other retailers where shoppers are shying away from big ticket item purchases.
Other stocks in the news this morning are Micron and Applied Materials. Applied Materials announced they will invest up to $4 billion dollars in massive research facility in Sunnyvale, CA. Shares of the stock are unchanged in premarket trading. Meantime, shares of Micron are indicated 4% lower premarket following news China will ban the company’s chips over security concerns. This is just the latest salvo in the chip war between China and the U.S.
Finally, with next week being a holiday shortened week, investors should remember that volume tends to wind down as we get deeper into the week. I would expect volume to significantly taper come Thursday and Friday. Thursday’s PCE report might keep investors engaged in the morning, but don’t be surprised if volume then dries up quickly. As always I would stick with your investing plan and long term objectives.
tastytrade, Inc. commentary for educational purposes only. This content is not, nor is intended to be, trading or investment advice or a recommendation that any investment product or strategy is suitable for any person.
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