Last week, as earnings season started to wind down, major U.S. stock indexes traded on the quiet side, with the overall trend being higher.
Tallying the week, the S&P 500 rose by 1.85%, the Nasdaq 100 increased by 1.51%, and the Dow Jones Industrial Average saw an uptick of 2.16%.
Three in A Row
Major U.S. stock indexes made it three weeks in a row of gains, with the S&P 500, Nasdaq, and Dow all higher. As of Friday’s market close, major U.S. stock indexes were slightly lower than their record-high levels posted in early April.
Volatility Declines
After some recent investor anxiety in April, the CBOE Volatility Index fell by nearly 7% last week, reaching lows not seen since March.
The decline indicates that investor anxiety has eased from higher levels when the Israel/Iran situation was making headlines.
Consumer Sentiment Softens
According to the monthly University of Michigan’s Surveys of Consumers, inflation fears have spooked consumers.
The monthly survey showed consumer sentiment declined about 13% in May from April levels following three months of little change.
“While consumers had been reserving judgment for the past few months, they now perceive negative developments on a number of dimensions,” said Joanne Hsu, the survey’s director. “They expressed worries that inflation, unemployment, and interest rates may all be moving in an unfavorable direction in the year ahead.”
Many have been surprised that such a change in sentiment has not happened earlier, as the inflationary toll on middle-class Americans has been steady for a prolonged period. Could the consumer be the chink in the armor of this economy, finally?
S&P 500 Earnings
As of May 10th, with 92% of S&P 500 companies reporting actual results, blended Q1 year-over-year earnings growth (which combines actual and estimated results) was 5.4% for the S&P 500.
Should 5.4% be the actual growth rate for Q1 once all S&P 500 earnings are totaled, it would mark the highest year-over-year earnings growth rate for the S&P 500 since the second quarter of 2022. Not too shabby!
First quarter S&P 500 earnings growth was heavily concentrated among five names: NVIDIA, Alphabet, Amazon.com, Meta Platforms, and Microsoft.
Economic Data Incoming
It’s a data-heavy week, with the Producer Price Index release on Tuesday at 8:30 a.m. and the Consumer Price Index release at 8:30 a.m. on Wednesday. Additionally, retail sales data will be released on Wednesday, which could garner more attention than usual after the dip in consumer sentiment last week.
The Takeaway
Last week was one of those “smooth sailing” weeks that are quite enjoyable as a long-term investor, as time in the market takes care of itself versus ”timing” the market.
Time in markets is what matters. It is the discipline and consistency of a long-term investor that allows weeks like last week to be enjoyed to their fullest!
Market narratives are dynamic, and we are now seeing a healthier narrative with supportive earnings overall for Q1 2024, yet so much hinges upon upcoming inflation data. Markets want rate cuts, and as of last week’s market close, it looks like July or September is expected by rate cut bulls. Of course, that is subject to change.
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