Last week was a mixed week for stocks with a Friday rally enabling the S&P 500 to break a losing streak of three consecutive weekly losses, currently standing down 3% from its recent highs. The DJIA was not so fortunate and posted a fourth consecutive weekly decline. The market has remained in somewhat of a purgatory range with weak earnings, potential rate hike concerns, full valuations, and the U.S. election increasingly creeping into market dynamics. This coming weekend will mark a one-year period on the S&P 500 without making a new high, not too abnormal, but quite a change from 2014 which ranked fifth all time with most daily closes at an all-time record.
The steady drumbeat of hawkish rhetoric from Fed officials got the market’s attention with the release of the last FOMC meeting minutes on Wednesday. They indicated a June hike was appropriate if the economic data continues to show strength. The apparent willingness of the Fed to raise rates as early as June was not expected by the market and caught people by surprise. Probabilities of a June hike jumped from 2% on May 15th, to 32% on May 19th with July pricing in 55% likelihood of a hike.
Bond yields also climbed on the Fed meeting insights with 10yr jumping from 1.71% a week ago to 1.85% on Friday. The yield curve became flatter with the front end selling off sharply. Last week, the 2 year note climbed from 0.76% to 0.89% while the 30 year fared better, closing at 2.63%, up from 2.55%. The flattening trend has been the theme for 2016 as evidenced by the 2-30 year spread narrowing from 191 at the beginning of the year down to 174 on Friday.
Oil jumped 3.3% last week and earnings season officially came to an end. At the start of earnings season, the S&P 500 was trading at 2,041. Friday closed at 2,040, so despite a year over year decline in Q1 earnings of 6.8% (a fourth consecutive quarterly loss), the market basically went nowhere when all was said and done.
