In a subdued conclusion to the week, Wall Street wrapped up its strongest performance since March, as stocks meandered to modest declines.
The S&P 500 experienced a dip of 0.4%, or 16.25 points, settling at 4,409.59 after displaying some uncertainty throughout the day. Nonetheless, it achieved its fifth consecutive week of gains, marking its lengthiest streak since November 2021. Additionally, it remains near its highest level since April 2022.
The Dow Jones Industrial Average slid 0.3%, or 108.94 points, to reach 34,299.12, while the Nasdaq composite declined by 0.7%, or 93.25 points, reaching 13,689.57.
Humana suffered a notable setback, witnessing a 3.9% drop in the S&P 500. The company joined the ranks of health insurers cautioning about escalating costs due to pent-up demand for medical services. UnitedHealth, a prominent health insurance giant, had issued a similar warning earlier in the week.
Treasury yields experienced an increase, with the 10-year Treasury note yield rising to 3.76% from Thursday’s 3.72% mark. The two-year Treasury yield, which reacts more strongly to Federal Reserve expectations, rose to 4.72% from 4.65%.
At its recent meeting, the Federal Reserve opted to maintain its benchmark interest rate at its current level, but it provided a cautionary note by indicating the possibility of two rate hikes later in the year. The central bank’s upcoming meeting, scheduled for July 25-26, has led market participants to speculate that a rate increase is on the horizon. According to data from CME Group, traders are largely convinced that this will be the sole rate hike for the year.
Before the temporary pause in rate adjustments, the Federal Reserve had implemented ten consecutive rate hikes since March 2022. The objective behind these increases has been to moderate economic growth in order to curb inflation without causing a recession.
Charlie Ripley, Senior Investment Strategist for Allianz Investment Management, expressed support for the Fed’s decision to temporarily pause and assess the cumulative impact of its policy measures on the economy. Ripley believes that taking the time to evaluate the consequences is the appropriate approach for the central bank.
The S&P 500 has surged by approximately 15% so far this year, largely driven by growing optimism surrounding the Federal Reserve’s potential cessation of interest rate hikes as inflation subsides and the economy steers clear of a significant recession. A significant portion of Wall Street’s gains can be attributed to prominent technology stocks, which stand to benefit the most from a more accommodative interest rate environment.
Prior to the Federal Reserve’s recent meeting, a report was released on Tuesday indicating a further slowdown in inflation during the month of May. This news set the stage for the central bank’s subsequent deliberations.
On Friday, a significant survey indicated that U.S. consumers are adjusting their expectations for future inflation, a development closely watched by the Federal Reserve. The central bank aims to prevent elevated inflation expectations from fueling a self-perpetuating cycle that exacerbates inflationary pressures. The preliminary reading of the University of Michigan’s survey also suggested that consumer sentiment is strengthening more than anticipated.
Throughout the week, investors grappled with a mixed array of economic reports. U.S. retail sales unexpectedly displayed strength in May, while the resilient job market showed some signs of softening as the number of workers applying for unemployment benefits slightly exceeded expectations. Additionally, the manufacturing sector continued to contract due to the impact of higher interest rates.
Wall Street closely monitored the latest company statements to gain insights into the future direction of the economy. While analysts have been warning of a potential recession this year, the economy has thus far demonstrated enough resilience to resist such a downturn. However, several industries have cautioned about lingering demand weakness throughout the year.
Chemical company Cabot witnessed an 8.1% decline after announcing that soft global demand, particularly in China, would negatively impact its profits this year. On the other hand, software maker Adobe rose 0.9% following solid financial results and an upward revision of its profit forecast.
European and Asian markets experienced gains during this period.
Looking ahead, investors can expect a relatively quieter week with only a few economic updates focused on the housing market. U.S. financial markets will be closed on Monday in observance of Juneteenth.