Week in Review
Stock prices rose for the fifth straight week, matching the longest streak since 2019. The NASDAQ continues to dominate equity returns this year: it’s up more than 30%, while the Dow Jones Industrial Average has risen a paltry 3.5%. Crude oil recaptured some of its year-to-date losses by rising 2%, while gold and bitcoin both fell. For Bitcoin, prices are now at the lowest level since March. The US Dollar dipped back into negative territory for the year, and interest rates rose modestly.
The Federal Reserve held rates constant at last week’s FOMC meeting, an unsurprising outcome after Tuesday’s CPI report showed that price pressures continue to moderate. The quarterly Summary of Economic Projections showed that the median Fed participant sees two more quarter-point hikes by year-end. That would imply a terminal rate of 5.50%-5.75% for this cycle and the highest Fed Funds rate in 20 years. Notably, the SEP showed expectations for a rate cut sometime next year, even while inflation remained above the 2% target rate in those forecasts. Fed Chair Jerome Powell justified this by saying that he’s targeting a level of real interest rates, so he anticipates rates will need to fall with inflation after they’ve reached a sufficiently restrictive level.
Market breadth continues to improve as the stock rally extends. On each 20, 50, 100, and 200-day timeframes, the majority of S&P 500 stocks are now above their moving averages. The opposite was true a month ago.
Trends are healthiest in growth sectors – Information Technology, Consumer Discretionary, and Communication Services. In those 3 groups, the vast majority of stocks are participating in the market advance. Breadth within Industrials is similarly strong. Less convincing are the Energy and Utilities sectors, where long-term trends remain under pressure.