The S&P 500 (SP500) on Friday advanced 1.58% for the week to end at 5,431.60 points, posting gains in four out of five sessions. Its accompanying SPDR S&P 500 ETF Trust (NYSEARCA:SPY) added 1.64% for the week.
Wall Street’s benchmark index delivered its best weekly gain in over a month. Moreover, the gauge notched a remarkable streak of posting a fresh record close for four days in a row, before stalling in today’s session. The S&P (SP500) carved out an intraday all-time high of 5,447.25 points on Wednesday, while its peak closing level stands at 5,433.64, achieved on Thursday.
The main driver of this week’s climb was surprisingly soft consumer and producer inflation data. On Wednesday, market participants received their first flat headline consumer price index (CPI) reading of the year. Moreover, core CPI posted its smallest M/M increase since August 2021. Then, on Thursday, the producer price index (PPI) unexpectedly slipped.
Both reports, especially the CPI, cheered Wall Street. In response, traders raised their expectations for an interest rate cut by the Federal Reserve in September.
“A bevy of soft inflation data for May fueled optimism that the Federal Reserve will begin cutting rates at the September FOMC meeting … This week’s data signal that progress continues on the inflation front, even if that progress has been frustratingly gradual and bumpy at times,” Wells Fargo said.
The inflation data ended up overshadowing the other major event of the week – the Fed’s latest monetary policy decision and release of updated Summary of Economic Projections (SEP), or the so-called dot plot.
The Fed, as widely expected, kept its benchmark federal funds rate range at a 23-year-high. However, policymakers acknowledged that there had been “modest further progress” towards their 2% inflation target. Countering that slightly bullish signal was the dot plot, which showed an expectation of only one 25 basis point rate cut in 2024 from a prior forecast for three such cuts.
Fed chair Jerome Powell at the post-decision press conference said that the central bank was still looking for “greater confidence” that inflation was moving in the right direction. He did acknowledge Wednesday’s CPI report, but also noted that the labor market remained strong. He remained noncommittal on rate cuts, saying that the monetary policy committee was looking at a “range of plausible outcomes.”
“Fed Chair Jay Powell’s approach to cutting interest rates based on forecasts that inflation will continue moving lower could be summed up by the phrase ‘Trust, but verify.’ He used the word ‘confident’ or ‘confidence’ 20 times at (the) press conference,” the Wall Street Journal’s Fed watcher Nick Timiraos said on X (formerly Twitter) on Wednesday.
One of the concerns on investors’ minds over the past few days was the divergence in market breadth, with megacap technology stocks responsible for most of this week’s advance in the S&P 500 (SP500).
“CNN’s Fear and Greed sentiment gauge is actually in ‘Fear’ territory right now because of how weak its market breadth readings are,” Bespoke Investment Group noted on X.
Turning to the weekly performance of the S&P 500 (SP500) sectors, seven of the 11 ended in the red. Technology soared more than 6%, underscoring just how much support the heavyweight growth sector provided to the broader market. Energy and Financials topped the losers. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from June 7 close to June 14 close:
#1: Information Technology +6.42%, and the Technology Select Sector SPDR Fund ETF (XLK) +5.60%.
#2: Real Estate +1.19%, and the Real Estate Select Sector SPDR Fund ETF (XLRE) +1.47%.
#3: Communication Services +0.88%, and the Communication Services Select Sector SPDR Fund (XLC) -0.32%.
#4: Consumer Discretionary +0.27%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) +0.38%.
#5: Utilities -0.07%, and the Utilities Select Sector SPDR Fund ETF (XLU) flat.
#6: Health Care -0.40%, and the Health Care Select Sector SPDR Fund ETF (XLV) -0.38%.
#7: Materials -0.90%, and the Materials Select Sector SPDR Fund ETF (XLB) -0.90%.
#8: Industrials -1.01%, and the Industrial Select Sector SPDR Fund ETF (XLI) -0.96%.
#9: Consumer Staples -1.20%, and the Consumer Staples Select Sector SPDR Fund ETF (XLP) -0.91%.
#10: Financials -2.00%, and the Financial Select Sector SPDR Fund ETF (XLF) -2.00%.
#11: Energy -2.32%, and the Energy Select Sector SPDR Fund ETF (XLE) -2.17%.
For investors looking into the future of what’s happening, take a look at the Seeking Alpha Catalyst Watch to see next week’s breakdown of actionable events that stand out.
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