How Will the S&P 500 Do This Summer? Ask the Fed!

On Friday stocks traded in a narrow, sideways band with the major indices closing virtually unchanged. The Dow Jones Industrial Average fell slightly, but volatility was narrow and volume light. The S&P 500 was unchanged, and the Nasdaq eked out its seventh straight gain, but only by 0.1%. The Russell 2000 lost 0.1%.

Five of the S&P 500’s sectors showed gains, led by consumer staples (+1.6%), while real estate was the biggest losing sector (-0.5%). Marvell Technology Group Ltd. (NASDAQ:MRVL) led a semiconductor advance, jumping 4.3% after reporting better-than-expected earnings and revenues.

West Texas Intermediate crude oil gained 1.8% on Friday, at $49.78 per barrel, but for the week it lost 1.1% due to OPEC’s decision not to follow through with earlier indications of cutting production for the next nine months.

At Friday’s close, the Dow Jones Industrial Average fell 3 points to 21,080, the S&P 500 gained a point to close at 2,416, Nasdaq added 5 points at 6,210, and the Russell 2000 closed at 1,382, down one point. The NYSE primary exchange traded 683 million shares with total volume of 2.8 billion shares. Nasdaq crossed 1.6 billion shares. On the Big Board, advancers were ahead by a 1.1-to-1, and on Nasdaq decliners led 1.1-to-1. Blocks on the NYSE fell to 5,987 from 6,900.

For the week, the S&P 500 gained 3.2%.

S&P 400 midcap MDY
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Russell 2000

Mid-caps, as charted by the SPDR S&P MidCap 400 ETF (NYSEARCA:MDY), are still mildly bullish. The reversal of mid-May with a CBR Buy signal plus positive cumulative volume following the advance tend to convey a bullish picture.

However, resistance at $318 must be overcome if we are to go fully on the buy side.

Conclusion: Last week’s pre-holiday lack of enthusiasm is normal. Many economists are focusing on the month of June, since that’s when it seems most likely the Federal Reserve will increase interest rates. The implied probability of a hike increased to 83.1%, up from 78.5% the week before.

How the market reacts to another rate increase could indicate the stock market’s course for the remainder of the summer.

Today’s Trading Landscape

To see a list of the companies reporting earnings today, click here.

For a list of this week’s economic reports due out, click here.

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