Stocks could take on the momentum of this latest rally next week as investors look to Friday’s jobs report.
All three major indexes posted big gains over the past week, each up more than 6%. Both S&P 500 and Nasdaq Composite broke a seven-week losing streak, while it’s already been eight weeks of losses for Dow Jones Industrial Average.
“I think this is the start of a long-awaited drop in price,” said Sam Stovall, investment strategist at CFRA Research.
Friday’s May jobs report is the most important data on the calendar, which also includes ISM manufacturing, employment data, monthly vehicle sales and the Federal Reserve’s beige book, all on Wednesday.
“I think 325,000 consensus [nonfarm payrolls] number, we can easily beat. But that’s just the math,” said Alex Chaloff, co-head of investment strategy at Bernstein Private Wealth Management.
Economists have predicted a slowdown in job creation from 428,000 jobs in April. “You can’t keep growing at that rate, especially with the Covid spike,” Chaloff said. It’s a bit of an air for the 325,000 figure.
Stocks have been volatile over the past week but have rallied, especially after the Federal Reserve’s release minutes since its last meeting.
The S&P 500 rose 6.5% to 4,158, its best week since November 2020. The Dow gained 6.2%, while the Nasdaq was the better one, up 6.8%.
“It’s waiting for some kind of catalyst, and I think it got it from the Fed,” Mr. Stovall said.
“So I think a lot of investors think they’re getting past the rate hike cycle,” he added, implying that they might take a pause into the third quarter. “I think that was the trigger for the rally. The market was just oversold on a sentiment and breadth front and was ripe for some kind of good news and the Fed delivered.”
Chaloff said the market is expecting the Federal Reserve to raise interest rates by 50 basis points, or half a percentage point, at each of the next two meetings. That could mean volatile trading throughout that period, but he added the first time the Fed gets back to a quarter point rate, the market will have a tough recovery.
“I think this is the early stages of the uptrend but we have the Fed meeting in June. We have the Fed meeting in July,” he said. “It’s going to have an impact on the markets. It’s going to be jittery when the Fed admits that they have work to do. We’re not saying this is a floor… But it’s great to see the markets reacting one way or another. appropriately with solid macro data.”
For now, however, the stock could move higher. “I can say it’s not been a really crazy volume week, so it’s great, it’s fun, it’s nice to go into the long weekend, start the summer off with some strength, but the breadth and the depth is yet to come”. Chaloff said. “I mean, ‘Okay, guys, we’re not dancing. We’re still not there “…We think we’ve made it through the worst of it, but not all.”
Chaloff said he will be watching to see if hedge funds, which are unloading their holdings, start buying next week, which could be a positive catalyst for the market.
“Weeks like this help build yourself up, so while it’s not a breakout week, it’s an important week,” he said.
Everything over the weekend can be important, but the weekend is also a time for investors to reflect. “If you’re having a really bad week and people can’t touch their money for 48 or 72 hours, then you really have a really bad start to the week,” says Chaloff.
Bond yields have been lower and more stable over the past week. The 10-year yield was at around 2.74% on Friday.
“I think that’s positive for stocks and obviously for bonds,” Chaloff said. “After seven or eight weeks of outflows, you start getting capital into fixed-income instruments of all kinds, and that puts a cap on yields.”
It’s also a positive for the growth companies that are hit hardest by rising interest rates.
Markets close for May on Tuesday. As of Friday, the Dow and S&P 500 were both flat for the month but negative for the Nasdaq.
June is generally positive for the S&P 500, Stovall said. “June usually has little spikes. That’s average in terms of performance,” he said.
Market is closed
9:00 am S&P / Case-Shiller house prices
9:00 am FHFA house prices
9:45 am Chicago PMI
10:00 am Consumer confidence
Monthly car sales
9:45 am Manufacturing PMI
10:00 invent ISM
10:00 am Construction spending
10:00 am JOLTS
2:00pm Beige Book
8:15 am ADP payroll data
8:30 a.m. Unemployment claims
8:30 a.m. Productivity and costs
10:00 am Factory order
8:30 a.m. Jobs
9:45 am Services PMI
10:00 am ISM Service