Stocks Claw Back from Losses as News Shifts and Yields Fall

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Last week’s news wasn’t great, but it was good enough to stop the bears.

The S&P 500 rose 0.5 percent between Friday, April 26, and Friday, May 3. At one point the index was down as much as 2 percent, only to snap back in the last two sessions. Yields also fell and the U.S. dollar weakened.

“It’s unlikely that the next policy rate move will be a hike,” Federal Reserve chair Jerome Powell told reporters on Wednesday. He added that recent increases in inflation aren’t “persuasive evidence” that interest rates need to go higher. The central bank also plans to shrink its balance sheet by $25 billion a month instead of $60 billion, which has a net effect of easing policy.

The next big event came on Friday, when non-farm payrolls missed estimates for the first time in six months. Unemployment and wage growth were also lower than expected. That also made investors think the Fed is on a path toward lower interest rates.

The Fed meeting and weak job report offset other potentially bearish news last week, like a higher employment-cost index and disappointing productivity.

Apple’s Comeback

Another positive last week was Apple’s (AAPL) fiscal second-quarter earnings report. The iPhone maker managed to keep its earnings flat from the previous year despite revenue shrinking by 4 percent. Services bolstered profitability by adding nearly $3 billion of revenue and trimming $7 million of costs.

AAPL also repurchased 2.4 percent of its shares and announced $110 billion more in buybacks. It was the biggest buyback announcement ever, according to Reuters and CNBC.

At least two other items lifted the stock. First, business in China shrank less than feared. Second, Artificial Intelligence could be coming to the iPhone.

“We continue to feel very bullish about our opportunity in Generative AI,” CEO Tim Cook said on the conference call. “We’re looking forward to sharing some very exciting things with our customers soon. We believe we have advantages that will differentiate us in this new era.”

Several analysts predicted AAPL will unveil AI technology June 10-14 at its Worldwide Developer Conference (WWDC). That creates a potential catalyst into the event.

Forgotten Growth Stocks Jump

Last week was unusual because biotechnology, Chinese stocks and solar energy rose the most. Those groups have mostly lagged for years. Banks and utilities also climbed. It was an odd mix, but they shared the common theme of benefiting from potential rate cuts.

Biggest Gainers in the S&P 500 Last Week
Bio-Techne (BIO)+21%
Howmet Aerospace (HWM)+19%
Moderna (MRNA)+16%
Garmin (GRMN)+16%
CH Robinson (CHRW)+16%
Source: TradeStation Data

Energy and commodities, on the other hand, pulled back. Crude oil had its worst week in three months and precious metals continued lower. Financials and industrials lagged, which is consistent given the shift toward smaller growth stocks like biotechnology.

For example, the S&P 500’s biggest gainer last week was Bio-Techne (TECH). The life-science company jumped after earnings and revenue beat estimates. It’s still down 7 percent in the last year and is barely positive since December.

Moderna (MRNA) lost more than 80 percent of its value between August 2021 and October 2023, but just had its best week in over a year. Revenue beat estimates by 35 percent as the vaccine developer looks to evolve past its initial surge from coronavirus.

Howmet Aerospace (HWM) jumped to a new all-time high after results and guidance surprised to the upside.

S&P 500 earnings are up about 5 percent so far this quarter, according to FactSet. It’s the strongest growth in two years, and an improvement from the 3.4 percent increase forecast at the end of March.

SPDR S&P 500 ETF (SPY), daily chart, with key levels and indicators.

Charting the Market

The S&P 500 ended last week at its highest level since April 11. The index is back near its 50-day moving average, a potentially important trend indicator.

It also made a higher low, which may confirm the early-April pullback is nearing an end.

Some internals calculated by TradeStation could also suggest that conditions are improving. More than half the index’s members closed above their 20-day moving averages. The number of new 52-week highs is climbing again, while the lows are falling.

The 10-year Treasury yield’s chart was perhaps more important because higher borrowing costs have weighed on sentiment since late 2021. Last week the yield stalled around 4.7 percent, a key level from early November.

If the yield remains below that point, it would represent a lower high on the weekly chart. That could be an early sign of interest rates potentially peaking.

10-year Treasury yield, daily chart, showing key levels.

The Week Ahead

This week is quieter, with fewer important economic events and earnings. However, several Fed officials on the monetary committee speak.

Biggest Decliners in the S&P 500 Last Week
Qorvo (QRVO)-18%
Starbucks (SBUX)-17%
CVS Health (CVS)-17%
Norwegian Cruise Line (NCLH)-16%
Expedia (EXPE)-15%
Source: TradeStation Data

Today features Thomas Barkin and John Williams. Palantir Technologies (PLTR) announces results after the closing bell.

Walt Disney (DIS), Wynn Resorts (WYNN) and Arista Networks (ANET) report earnings tomorrow.

There’s a 10-year Treasury auction on Wednesday. While normally not important, it could have an impact on borrowing costs. Fed officials Philip Jefferson and Lisa Cook speak. Crude-oil inventories are also due. Uber Technologies (UBER) and Airbnb (ABNB) issue quarterly numbers.

Thursday brings initial jobless claims.

Consumer sentiment is on Friday, which also has speeches by Fed officials Michelle Bowman and Michael Barr.

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