Despite many individual companies pulling back steeply, the three major indexes finished the day positive
The bullish momentum was mostly driven by gains in financial stocks and stability in mega-caps. Growth stocks and more speculative plays have been hit hard by a combination of inflationary fears and recent suggestions that the interest rate should be raised. The S&P 500 (SPY) closed the day 0.81%, less than 1% below its record high. The Dow Jones (DIA) recorded a new intraday record while the Nasdaq (QQQ) closed 0.76%. Market participants continue to monitor commentary from monetary officials, ongoing earnings season, and new economic data. Particularly the April Jobs Report set for release tomorrow morning.
After reclaiming the leadership in April as the best performing sector in the SPY. So far in May, we have seen investors rotate out of big tech stocks and into financial stocks. Many big banks are pushing to all-time highs. Market participants are worried that a suggested raise in interest would affect the already stretched valuation of some companies.
Some analysts are worried that positive catalysts for equities may be running out. The economy in the US is recovering faster than initially predicted by analysts. This earnings season has seen 86% of companies in the S&P 500 reporting earnings that beat estimates.
Treasury Secretary Janet Yellen suggested that interest rates may need to rise in the near term to prevent the economy from overheating
It may be that interest rates will have to rise somewhat to make sure that our economy doesn’t overheat, even though the additional spending is relatively small relative to the size of the economy. It could cause some very modest increases in interest rates to get that reallocation, but these are investments our economy needs to be competitive and to be productive. I think our economy will grow faster because of them.Treasury Secretary Janet Yellen
In later remarks, she added that raising rates was not something she was predicting or recommending. That the decision ultimately rests with the Federal Reserve.
She said, “Let me be clear, that’s not something I’m predicting or recommending. If anybody appreciates the independence of the Fed, I think that person is me.”
The Labor Department will release its April jobs report on Friday. It is expected to show a staggering 1 million payrolls coming back last month, accelerating March’s gain. In March, the Department of Labor reported payrolls increased by 916,000 for the month while unemployment fell to 6%. In April 2020, the unemployment rate was at a high of almost 15%.
- Weekly unemployment claims fell to 498,000 last week—a new low since the Covid-19 pandemic began more than a year ago. The four-week average of initial claims is also at the lowest point since the pandemic began. Read more here.
- The Bank of England upped their growth estimates for the economy of the UK, anticipating GDP will grow 7.25% in the country, up from its forecast for 5% growth in February. The BOE also now sees inflation averaging 2.5% in 2021, up from its prior forecast for 2%, but said the rise in price pressures will likely be “temporary.”
- NIO announced the company will expand into Norway, with the group’s first service and delivery center set to open in the capital Oslo in September.
- A lot of stocks pulled back despite posting better-than-expected earnings. The market is very narrow right now, with gains concentrated in the financials, energy, and mega-caps.
- IBM introduced what it says is the world’s first 2-nanometer chip-making technology. The technology could be as much as 45% faster than the mainstream 7-nanometer chips in many of today’s laptops and phones and up to 75% more power-efficient. Read more here.
- Cloudflare announced great quarterly results. Sustained customer growth, with a record addition of roughly 120 large customers in the quarter. Large customers are now representing greater than 50% of their revenue.
The market Is unpredictable and stocks going down is normal
Since the March lows, it seems a lot of the stocks have gone up +100% in one year. It is very abnormal and does not happen in “regular” years. We have seen this, especially in the tech sector. With stocks going down 10- 20% or more since February.
You must remember that if a stock goes up 100% and falls by 20% that is still a great return. However, if you FOMO’d in many cases or bought into the hype at the top, you must understand that this can happen. The market is unpredictable right now and it’s important to invest in stocks that you believe are good and not look for a quick book if you are worried about losing money.