Stocks just had their biggest rally in over a year as a broad cloud of bearishness began to lift, despite an increasingly hawkish Federal Reserve.
The S&P 500 rose 6.2 percent between Friday, March, 11, and Friday, March 18. The Nasdaq-100 jumped 8.4 and the Dow Jones Industrial Average climbed 5.5 percent. Those were the biggest weekly gains for all three indexes since the first coronavirus vaccine was announced in November 2020.
The Fed raised interest rates by 25 basis points. Policymakers also increased their guidance for further hikes (from 3 to 6), while predicting sharper inflation and slower growth. The moves were slightly more hawkish than expected, but sentiment was already so negative that buyers flocked back to the market. Two voting committee members made similar comments independently: James Bullard called for rates going above 3 percent, while Christopher Waller said one or more 50-basis point increases may be needed this year.
|Biggest Gainers in the S&P 500 Last Week|
|EPAM Systems (EPAM)||+47%|
There was also a surprisingly positive development for Chinese stocks after officials said they’re working to prevent delistings from U.S. markets. Companies like Alibaba (BABA), JD.com (JD) and Baidu (BIDU) had their biggest weekly gains ever. Beijing separately reported better-than-expected industrial production and retail sales.
Growth Stocks Surge
Growth stocks, including technology and e-commerce, have lagged since November as investors worried about higher interest rates. However they jumped last week, a possible sign the market thinks all the hawkish news is priced in for now.
Companies that led to the downside had some of the biggest rallies: EPAM Systems (EPAM), PayPal (PYPL) and Etsy (ETSY). The Renaissance IPO ETF (IPO), which includes high-multiple companies like Snowflake (SNOW), also had its best week ever. Software makers, semiconductors and biotechnology outperformed as well.
Aside from the Fed news, retail sales missed estimates last week. Initial jobless claims and housing numbers were stronger than expected.
Charting the Market
At least two potentially bullish things happened on the S&P 500’s chart last week: Prices broke their falling trendline and made a higher low versus February. TradeStation data also show positive internals, with over 70 stocks rising at least 10 percent and not a single name dropping more than 8 percent.
The Nasdaq-100 and Russell 2000 made lower lows and higher highs. Such “outside candles,” following weeks of downside, are potentially bullish reversal patterns.
The Dow Jones Transportation Average also had its highest weekly close since mid-November. Its recent strength may give some chart watchers reason to optimistic about the broader markets.
The Week Ahead
This week is quieter than last week, with a few economic events and earnings reports.
Fed Chairman Jerome Powell will speak and Nike (NKE) reports earnings after the closing bell.
|Biggest Decliners in the S&P 500 Last Week|
|Exxon Mobil (XOM)||-7.4%|
|Baker Hughes (BKR)||-6.2%|
|Huntington Ingalls (HII)||-6%|
John Williams of the New York Fed will speak tomorrow and Adobe (ADBE) issues results in the afternoon.
Wednesday brings new home sales and crude oil inventories.
Initial jobless claims and durable-goods orders are the big items on Thursday.
Pending home sales are the main item Friday.
Next week will be more active, with monthly employment and manufacturing numbers scheduled.