The stock market finished out this week on an upbeat note ahead of the extended holiday weekend.
The major indices saw some turbulent action, though, as market participants dealt with a lot of crosscurrents. The S&P 500 traded in a wide band between 4,100 and its closing level on Friday, which was just above 4,200.
The latter is the highest level for the S&P 500 since last August.
Uncertainty about the debt ceiling kept the market in check earlier in the week as contrasting reports emerged about how much progress was being made. Concerns reached a peak when Fitch Ratings put the nation's AAA rating on Credit Watch Negative. By Friday, though, some angst around the debt ceiling seemed to ease due to reports that negotiators were making progress and that a deal could be near.
Lingering rate hike concerns were also in play as investors reacted to the following commentary from Fed officials:
· Minneapolis Fed President Kashkari (FOMC voter) said in a CNBC interview that a decision to pause in June is a close call, adding that if the Fed pauses in June, it does not mean the tightening cycle is over.
· St. Louis Fed President Bullard (not an FOMC voter) said he thinks two more rate hikes are needed this year, according to Bloomberg.
· Fed Governor Waller (FOMC voter) said in a speech on policy rate hikes that "we need to maintain flexibility on the best decision to take in June... fighting inflation continues to be my priority."
· Cleveland Fed President Loretta Mester (not an FOMC voter) told CNBC in an interview that when she looks at the data, it does look like the Fed will have to tighten a bit more.
Some economic data this week corroborated the view that more rate hikes may be needed. Briefly, Q1 GDP was revised up to 1.3% from 1.1%, weekly initial jobless claims came in lower than expected, and the Personal Income and Spending Report on Friday reflected strong consumer spending and an uptick in the year-over-year PCE and core-PCE Price Indices.
Following the release of the Personal Income and Spending Report, market participants dialed up expectations of a 25 basis points rate hike at the June FOMC meeting. According to the CME FedWatch Tool, there is a 65.4% probability of a 25 basis points rate hike in June, up from 17.4% last Friday and 13.7% a month ago.
Market participants were also digesting some market-moving corporate news. NVIDIA logged a huge gain following its stellar quarterly results and guidance. Marvell Technology was also a big winner after its earnings report. Those names helped drive the outperformance of the PHLX Semiconductor Index this week, which jumped 10.7%. After this week's gain, the SOX is up 18.4% this month.
There was also a slate of earnings reports from retailers, which fueled some outsized moves to the upside and the downside.
In addition, mega caps continued their outperformance.
Treasury yields moved sharply higher this week. The 2-yr note yield rose 29 basis points as market participants recalibrated Fed policy outlook to 4.56%. The 10-yr note yield rose 11 basis points to 3.80%. The U.S. Dollar Index rose 1.0% to 104.23.
S&P 500 sector performance reflected leadership from mega cap stocks. The information technology (+5.1%), communication services (+1.2%), and consumer discretionary (+0.4%) sectors were the lone outperformers to close with a gain this week. Meanwhile, the consumer staples (-3.2%) and materials (-3.1%) sectors were the weakest performers.
· Nasdaq Composite: +2.5% for the week / +24.0% YTD
· S&P 500: +0.3% for the week / +9.5% YTD
· Russell 2000: UNCH for the week / +0.7% YTD
· Dow Jones Industrial Average: -1.0% for the week / -0.2% YTD
· S&P Midcap 400: -0.5% for the week / +0.5% YTD