Can the S&P 500 Build on Gains in the Next Week?
May 29 2022 - 12:23PM
Finscreener.org
Most major equity indices staged
an impressive comeback in the last week. Each of the S&P
500, Nasdaq Composite, and Dow Jones Industrial Average indexes
surged by more than 6% in the week ended on May 27.
Sam Stovall, the chief investment
strategist at CFRA Research claimed it might be the beginning of a
long-awaited relief rally. The upcoming week is a four-day one
where companies such as Hewlett Packard
Enterprise (NYSE:
HPE), Chewy (NYSE:
CHWY), and
Salesforce.com (NYSE:
CRM) will report
quarterly results.
There are several macro-economic
catalysts for stocks in the next few days that include ISM
manufacturing data, monthly vehicle sales, and job openings data,
all of which will be released on Wednesday.
According to economists, the pace
of job creation might slow in May to 325,000 compared to 428,000
jobs added in April.
The equity market remained choppy
in recent trading sessions but gained momentum after the Fed
released details from its last meeting. Stovall explained, “It was
waiting for some sort of a catalyst, and I think it got it from the
Fed. Not only was it not more hawkish, but it said it would look to
expedite the rate tightening.
He added, “So I think a lot of
investors thought they were frontloading the rate hiking cycle,
implying they could end up pausing in the third quarter sometime. I
think that’s what was the rally trigger. The market just got
oversold on a breadth and sentiment perspective and was ripe for
some sort of good news and the Fed delivered.”
Market participants expect the
Fed to increase interest rates by 50 basis points in the next two
meetings. But once the central bank reverses to interest rate hikes
of 0.25%, the indices should rally even further.
Will S&P 500 investors buy the dip?
The preferred
inflation indicator
of the Federal Reserve also known as
the core personal consumption expenditure price index rose 4.9%
year over year in April. While still elevated, the PCE data suggest
that price pressure might ease a bit. The PCE data for April was in
line with estimates and slowed from the 5.2% increase in
March.
Basically, the PCE data does not
include food and energy prices which are volatile and a major
contributor to inflation. If we include, food and energy prices,
the PCE would have surged by 6.3% in April compared to 6.6% in
March.
Despite high inflation rates,
consumer spending continues to increase on the back of higher wages
and lower savings rates. Data from the BEA suggests personal income
rose 0.4% in April, which is a decline of 0.1% percentage points
compared to March.
Several hedge funds have
offloaded investments in the first five months of 2022. There are
several stocks trading at a discount making them attractive to
value, contrarian, and growth investors. So, beaten-down stocks
trading at a discount are well-positioned to gain momentum if
institutional investors buy the dip.
Bond yields in the past week were
lower and the 10-year yield on Friday stood at 2.74%. Data suggests
that fixed income instruments are attracting funds which should
keep yields constrained going forward. These developments should be
viewed as a positive catalyst for growth companies that were
impacted significantly as interest rates moved higher.
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