Is the Fed Almost Done? Stocks Break Out On Hopes of a Soft Landing

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Stocks jumped to a 13-month high as investors hoped the Federal Reserve is almost done hiking interest rates.

The S&P 500 rallied above its peak from last August, gaining 2.6 percent between Friday, June 9, and Friday, June 16. The technology-heavy Nasdaq-100 continued to lead the charge. However old-economy sectors like industrials and materials also advanced on hopes the U.S. will avoid a recession.

The Fed left interest rates unchanged after hiking in the last 10 meetings. Policymakers signaled another 50 basis points of increases but CME’s FedWatch tool showed that traders anticipate only 25 basis points more by yearend.

CME FedWatch Tool, showing projections for December 2023 meeting.

Modest inflation readings may have supported that optimistic view. Consumer prices rose 4 percent annually in May. It was slightly lower than than feared and the smallest increase in over two years. The producer price index was also sharply below forecasts.

Meanwhile, retail sales, consumer sentiment and regional manufacturing reports surprised to the upside. That could suggest the Fed is successfully slowing inflation without triggering an economic contraction. Is it another “soft landing” like 1994 and 1995?

AI and Travel Stocks

Biggest Gainers in the S&P 500 Last Week
Carnival (CCL)+21%
Intel (INTC)+16%
Estee Lauder (EL)+16%
Oracle (ORCL)+14%
Catalent (CTLT)+14%
Source: TradeStation Data

A diverse set of stocks rallied last week. Artificial intelligence (AI) remained a major narrative as Nvidia’s (NVDA) market capitalization returned over $1 trillion. Adobe (ADBE) jumped after beating forecasts. (Investors are focused on its Firefly tool, which uses AI to create images and art.) Microsoft (MSFT) also hit a new all-time high after saying AI usage could boost annual revenue by as much as $10 billion. Meta Platforms (META) introduced an AI speech program called Voicebox.

Still the biggest gainer of the week was Carnival (CCL), which shot to a new 52-week higher after JPMorgan cited better demand for cruises.

Oracle (ORCL) rallied to a new record high after beating estimates and planning new AI products.

Intel (INTC) gained on optimism its long-term turnaround is finally taking effect. Catalent (CTLT) rebounded from long-term lows after earnings and revenue surprised to the upside.

China technology stocks including Alibaba (BABA) advanced after the country’s central bank cut interest rates.

Banks and energy stocks were among the few industries to fall last week.

S&P 500, weekly chart, showing key levels and the number of members hitting 52-week highs.

Charting the Market

Last week’s rally sent the S&P 500 above last August’s high of 4325. Some traders may view the next resistance levels at:

  • 4513, a weekly high from April 2022
  • 4637, the monthly high from March 2022

The index has risen for five straight weeks, its longest positive winning streak since November 2021.

Friday also saw 54 members of the S&P 500 make new 52-week highs. That was the biggest number since April 2022, according to TradeStation data.

The Week Ahead

This week brings more news from the Federal Reserve, plus real-estate data.

Biggest Decliners in the S&P 500 Last Week
Humana (HUM)-13%
Nasdaq (NDAQ)-11%
Bath & Body Works (BBWI)-7.8%
Warner Bros. Discovery (WBD)-7.5%
Zions Bancorp (ZION)-7.3%
Source: TradeStation Data

Housing starts and building permits are due this morning. FedEx (FDX) announces quarterly results in the afternoon.

Fed Chairman Jerome Powell begins two days of testimony in Congress at 10 a.m. ET tomorrow. Investors will probably monitor his comments for clues about future monetary policy. Lisa Cook, Philip Jefferson and Austan Goolsbee, other voting members of the Fed, also speak on Wednesday.

Thursday brings initial jobless claims, existing home sales and crude-oil inventories.

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