U.S. stocks closed strongly higher on Friday, 24th June 2022, with the S&P up by more than 3%, rebounding from a 3-week loss on comments from Federal Reserve officials and a better than expected data.
New home sales for May was up 10.7% to an annualized 696,000 pace, the first gain for the year. The median estimate for May was 590,000, and April’s digit was revised upwards to 629,000.
University of Michigan’s survey showed the inflation expectations for the next 5 to 10 years will be 3.1%, which is lower than the 3.3% that was recorded in the preliminary reading.
During this interval, investors took comfort in the comments from various Fed officials including J Powell’s testimony and St. Louis President James Bullard who said that fears of a U.S. Recession were overblown.
For the week the S&P rose 6.5%, the Dow Jones average was up 5.4% and the leader of the week was the Nasdaq, up an impressive 7.5%. Bond markets also rallied with the 10-year ending the week lower by 10 basis points.
Here are the closing levels on Friday, 24th June 2022:-
Last week, I said the only way up is if we get upside surprise on economic numbers.
That said, the market has shown that it wants to go up and will look for any excuse to do so.
It does not matter if new home sales were up on the possibility that people were trying to lock in mortgage rates before upcoming increases, it was looked at as higher sales mean better economic conditions.
Inflation expectations, while lower than the preliminary number, was still the highest since 1991. However, it was read as the Feds possibly backing away from raising 75 basis points at the next meeting.
The one that caught my attention was comments from James Bullard–
“fears of a U.S. recession are overblown, as consumers are flush with cash built up during the Covid-19 pandemic and the expansion is in an early stage.”
This was positive for the strength of the economy. It also suggests that he is happy to be aggressive in raising rates to fight inflation. He will be calling for a 75 basis points at the next meeting.
With this, I think the market is more focused on the comments about the unlikely recession than another 75 basis point hike.
So, we can keep looking at the bright side and continue to rally if we get more positive suggesting data.
Just don’t be surprised that when we run out of excuses to rally, the market may take a nasty turn and seek new lows. With higher rates and a potential recession because of it, it cannot be discounted.
Source: CBOE, Bloomberg
This commentary is written by James Gomes
James has been in the finance industry for over 30 years and most recently worked for a large U.S. bank for more than 20 years.
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