(Please enjoy this updated version of my weekly commentary from the POWR Value newsletter).
Stocks started the week higher as worries surrounding inflation seemed to subside a bit after multiple Federal Reserve leaders assured investors that inflation would be temporary. Investors pushed stocks higher across the board, with all three major indexes seeing strong gains. Eighty-three percent of S&P 500 stocks rose, while twenty-two out of the 30 Dow components gained.
The market finished lower on Tuesday as investors digested disappointing economic data. The Conference Board's gauge of consumer confidence eased a bit in May to 117.2 from a downwardly revised 117.5 reading in April. Plus, new home sales fell 5.9% in April following a significant downward revision in March as an increase in property values is limiting demand.
Stocks went back to their winning ways on Wednesday as the CBOE Volatility Index (VIX) hit its lowest point since early May. Though most major indexes were only marginally up as trading volume has thinned recently.
Stocks jumped again on Thursday, with strong economic data lifting cyclical value stocks. Weekly initial jobless claims were better-than-expected. In fact, claims are at a new pandemic low, keeping with a downward trend.
Additionally, capital goods orders rose a stronger-than-forecasted 2.3% in April, the largest increase in eight months. Investors were also waiting on President Biden to unveil his budget on Friday.
The market finished the week higher on Friday, even with economic data pointing to less spending and higher inflation. The core PCE deflator, which is the Fed's favorite proxy for inflation, rose 3.1% year-over-year last month, the largest jump since 1992. Core PCE inflation is a measure of prices that people pay for goods and services.
Overall, the S&P 500 and Dow Jones are up for the month, with gains of 0.55% and 1.93%, respectively. The Nasdaq Composite, on the other hand, is down 1.53% for May.
Market Outlook
As investors, we are essentially in a wait-and-see period. Many of the positive catalysts that have been driving the market forward are disappearing. The trillions in fiscal stimulus are already moving around the economy. The Fed has nowhere to go but up when it comes to rates, and the first quarter's earnings season is over.
So, to answer today's headline, no, I don't believe the market has turned the corner. While we may see more days like Wednesday, Thursday, and today, with lower trading volume, I still expect to see more volatility in the weeks ahead as investors keep their eyes on inflation and the Fed.
Plus, valuations on most stocks already reflect an improving economy. But the key is, we're not invested in those stocks. While the overall market may need a new growth catalyst to drive the major indexes higher, we're in great shape being invested in deeply undervalued stocks.
These companies have shown consistent growth and strong fundamentals, but luckily for us are trading at a discount.
What To Do Next?
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All the Best!
David Cohne
Chief Value Strategist, StockNews
Editor, POWR Value Newsletter
SPY shares closed at $420.04 on Friday, up $0.75 (+0.18%). Year-to-date, SPY has gained 12.71%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers.
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