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Market Jumps on Interest Rate Easing Fears

Stocks rallied last week and closed Friday on an extremely strong note with the Dow Jones Industrial Average gaining 800 points on the last trading day of the week. Investor fears over the possibility of sharply higher interest rate increases by the Fed were eased as several economic indicators are showing the U.S. economy slowing down. The Fed recently increased rates 0.75% at June’s meeting. Another 0.75% increase is likely in July.

In last week’s market commentary, I wrote that analysts are still very bullish on S&P 500 companies with about 57% on a “buy” rating and 38% with a “hold” rating. This week I wanted to show you a chart that reflects where analysts are with their target price for the S&P 500.

While analysts have reduced their target price for the S&P 500 by the end of 2022, it is still projected to rise 27% from where the index closed on Friday. Previously analysts had a year-end target price on the S&P 500 of 5,344. That figure has been reduced about 7% to 4,987.

Of course all of this will depend on how much the U.S. economy “cools” down with the interest rate increases being implemented by the Fed. However, If the central bank can engineer a soft landing, we may see a strong rally by year’s end. One caveat we need to be aware of; when the S&P 500 is in a bear market, it is not uncommon to see what experts call “bear market rallies.” These typically take place within the confines of the index continuing to hit new lows. Whether or not the recent rally is one of these, only time will tell. I will continue to watch for any confirmation that may signal this bear market may soon be ending.

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The Markets and Economy

 

  • The median price of homes in the S. shot above $400,000 for the first time in May. High mortgage rates aren’t keeping buyers away as demand continues to exceed an unusually low supply of available homes on the market.

 

  • According to business surveys, both S. and European economies slowed sharply in June as surging prices for food and energy weakened demand.

 

  • As funds for the $1 trillion federal infrastructure bill are being released for projects, construction companies struggle to find enough workers. Some are offering housing subsidies, signing bonuses, and other financial incentives. Another concern is inflation. With materials and labor costing more, many projects will need to be scaled back.

 

  • The S. composite purchasing managers index fell to a five-month low in June showing a slowing of economic activity.

 

  • High fuel prices are beginning to have an effect on drivers. Gas sales at S. stations were down 8.2% during the first week in June compared to the previous week. That is the 14th consecutive week that sales have lagged behind 2021 levels.

 

  • The University of Michigan’s consumer sentiment survey fell to its lowest point on record at a reading of 50 in June. The drop reflects the concerns consumers have regarding inflation that is running at a 40-year high.

 

Appearing before congress last week, Fed Chairman, Jerome Powell admitted that the central bank’s efforts to tame inflation may result in a recession. He added that the war in Ukraine has compounded the already high inflation situation created by supply-chain constraints due to the pandemic. His remarks were made before the Senate banking committee during his semiannual two-day report on monetary policy.

 

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The Standard & Poor’s 500 (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. The Dow Jones Industrial Average is a price-weighted index of 30 actively traded blue-chip stocks. The NASDAQ Composite Index is an unmanaged, market-weighted index of all over-the-counter common stocks traded on the National Association of Securities Dealers Automated Quotation System.

 

Opinions expressed are subject to change without notice and are not intended as investment advice or to predict future performance.

Consult your financial professional before making any investment decision. You cannot invest directly in an index. Past performance does not guarantee future results.

 

This newsletter was prepared by David M. Kover®. To unsubscribe from the Weekly Market Update please write us at 555 Eastport Centre Dr., Suite B, Valparaiso, IN 46383 or click this link:  Unsubscribe .

 

Note: All figures exclude reinvested dividends (if any). Sources: Bloomberg, Dorsey Wright & Associates, Inc. and The Wall Street Journal. Past performance is no guarantee of future results. Indices are unmanaged and cannot be invested into directly.

 

Securities offered through Triad Advisors, LLC, member FINRA/SIPC. Investment advice offered through Resources Investment Advisors, LLC, an SEC-registered investment adviser. Resources Investment Advisors. LLC and Vertical Financial Group are not affiliated with Triad Advisors, LLC.