Hope you are all doing well. After a 25% run higher in the S&P 500 over the past six months, we have in recent weeks seen a retreat from the record high that the S&P 500 achieved in late March. That accelerated this week as the index finished the week down 3.0% to post its third negative result in a row. The NASDAQ’s weekly decline was steeper at about 5.5%; in contrast, the Dow posted a tiny gain. The S&P 500 closed lower for the third straight week, while the technology-heavy Nasdaq was lower for the fourth week in a row. The S&P 500 is down about 5.5% from recent highs, while the Nasdaq is down around 7%.
However, the interest-rate-sensitive parts of the market, including small-cap stocks and the real estate sector, have pulled back more. Fear is rising as the VIX volatility index has climbed toward highs of the year. Yesterday was John Sterling day at Yankee Stadium, the legendary radio voice of the Yankees called it a career earlier this month. I have broken down this week’s update using some of his signature home run calls.
Bern baby Bern! (Bernie Williams)
The Fed continues to burn investors who are betting on a reduction in rates. U.S. Federal Reserve Chair Jerome Powell conceded that it’s “likely to take longer than expected” to gain sufficient confidence that inflation is on a sustainable downward track. In a speech on Tuesday, Powell reinforced recent messaging about a delayed timeline for interest-rate cuts, saying “it’s appropriate to allow restrictive policy further time to work. This comes as no surprise to me as markets have shifted their expectations for rates back in line with where I think they should be. As a result, yields of U.S. government bonds rose for the third week in a row. The yield of the 10-year U.S. Treasury bond briefly rose as high as 4.69% on Tuesday, the highest since last November.
An A-bomb from A-Rod! (Alex Rodriguez)
The tech sector bombed this week. Worries about the interest-rate outlook weighed on all growth stocks, and the U.S. large-cap growth benchmark trailed its value counterpart by a wide margin. The growth stock index closed down nearly 5% for the week versus a less than 1% decline for the value index. Two stocks that have been knocking it out of the park like they were on performance enhancing drugs led the charge downward. Netflix tumbled more than 9% despite earnings that beat on the top and bottom lines and strong subscriber growth of 16% from the previous year.
However the market focused on the fact that the company would no longer report paid memberships starting in 2025. On Friday afternoon, we saw the kind of fear selling that finally presents a buying opportunity in great companies like Nvidia which slipped 10% and registered its worst day since March 2020. If you have been waiting on the sidelines this is an opportunity to put your money back into the market as I continue to believe the market will continue making new highs later this year, even if it gets a little worse before it gets better.
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