Market Break Out?

WaveTech Database Gets More Traction!

 KR Opinion

As we conclude the first full week of May, we are analyzing the implications of last week's Federal Reserve decision to reduce the pace of quantitative tightening to $25 billion per month.

This policy adjustment is significantly shaping market dynamics. Market sentiment was bolstered by robust earnings reports released last Thursday, a slightly weaker jobless claims report, and a highly successful 30-year Treasury auction, all contributing to a positive session in equities.

Initially, I expected the markets to move sideways, but the trading range for both the S&P 500 and NASDAQ has narrowed significantly. As a result, we managed to touch both the upper and lower ends of this range. Notably, the markets have started to break above key resistance levels that had previously capped gains, suggesting a potential breakout. This momentum could set the stage for a significant upward movement next week.

The Michigan Consumer Sentiment Index will be released tomorrow, alongside some earnings reports. While earnings season has been a major driver of market sentiment, and we've seen the bulk of releases, the impact of earnings will continue to taper over the next few weeks. Despite this, the overall market sentiment remains positive, and there's an increasing likelihood that we could see new all-time highs in equities within the next five to eight sessions.

Looking Back on Thursday’s action

Stocks performed well today, with major indices recording gains between 0.3% and 0.9%. The S&P 500 notably closed above the 5,200 level for the first time since April 9, overcoming resistance encountered just this past Tuesday. Market breadth was positive, with advancing stocks outnumbering declining ones by a margin of 5-to-2 at the NYSE and 3-to-2 at the Nasdaq.

Top performers included Equinix, which soared 11.5% to $772.43, NRG Energy, up 7.8% to $81.76, and Steris, rising 7.6% to $225.99, all buoyed by strong earnings and/or forward guidance. In contrast, EPAM Systems fell sharply by 27.0% to $181.93, making it the day's biggest loser in the S&P 500 following disappointing earnings and guidance.

This drop significantly impacted the S&P 500 information technology sector, which declined by 0.3% despite gains in major stocks like Apple and Microsoft. Nvidia and other semiconductor stocks also declined, influenced by Arm Holdings’ results and merely satisfactory guidance for FY25, leading to a 0.6% drop in the PHLX Semiconductor Index.

Outside of technology, other sectors in the S&P 500 saw increases from 0.4% to 2.3%, with real estate leading the way, followed by utilities and energy sectors.

Supporting the positive market sentiment, Treasury yields dropped following a weaker-than-expected jobless claims report and strong demand at a $25 billion 30-year bond auction. The 2-year note yield fell to 4.81%, and the 10-year note yield decreased to 4.45%.

·S&P 500:+9.3% YTD

·Nasdaq Composite: +8.9% YTD

·S&P Midcap 400: +7.7% YTD

·Dow Jones Industrial Average: +4.5% YTD

·Russell 2000: +2.3% YTD

Reviewing Thursday’s  economic Releases:

Weekly Initial Claims: 231K (KR Forecast consensus 213K); previously revised to 209K from 208K. Weekly Continuing Claims: 1.785 million; previously revised to 1.768 million from 1.774 million.

- The key takeaway from the report is the increase in initial claims, which suggests a softening in the labor market. This perception may be a potential indicator for a Federal Reserve interest rate cut in the upcoming months.

Friday, market participants will receive the following economic data:

  - 10:00 ET: Preliminary May University of Michigan Consumer Sentiment (KR Forecast consensus 76.5; prior 77.2)

  - 14:00 ET: April Treasury Budget (prior -$236.5 billion)

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