Somewhat quietly, the U.S. stock market is grinding higher. A decline from late January highs was accompanied by higher volatility – but the stock market today actually looks pretty strong.
First quarter earnings season was solid, with tax reform helping results across the board. Broad indicators like unemployment and consumer confidence are at their highest levels in years. Trade war and interest rate concerns have popped up from time to time, but even a tumultuous G7 summit has done little to dent investor confidence.
Indeed, the S&P 500 is just off its highest levels since early February, and the tech-heavy NASDAQ 100 index touched an all-time high last week. With the news rather quiet outside Singapore where President Trump is meeting Kim Jong-un, there should be room for more gains over the next few weeks.
But there still are a couple potential stumbling blocks for the market this week and for the next month until earnings season starts again in mid-July. And so even in what looks like a quiet, and somewhat positive, environment, investors must be on their toes.
The Fed Meets
The biggest potential impact on the market this week likely comes from the Federal Reserve. The Fed meeting was June 12, with a rate hike likely announced June 13.
An increase is all but certain. And rising rates already have had an impact. The anticipation of 2018 rate hikes led to strong 2017 performance from bank stocks like Bank of America Corp (NYSE:BAC) and JP Morgan Chase & Co. (NYSE:JPM).
More recently, rising Treasury yields have rattled equity markets. Notably, dividend stocks have struggled. The Utilities SPDR (ETF) (NYSEARCA:XLU) is down nearly 8% YTD and off 15% from late November highs. Consumer stocks have been punished, including widely held income investments like Procter & Gamble Co (NYSE:PG) and Kraft Heinz Co (NASDAQ:KHC).
The stock market today isn’t sure what to expect. Bond prices appear to suggest roughly even odds as to whether the Fed will raise rates three times this year or four. If it’s the latter, the market as a whole may be able to shrug off the news. But already-impacted income plays may see further pressure as investors rotate into 10-year Treasuries likely to keep their yields consistently over 3%.
One thing to watch this week may be strength in the tech sector. As noted, tech has led the market over the past four-plus months. If it can continue to do so, that will give the rest of the market more time to catch up.
A number of big names are trading at the highs. Twitter Inc (NYSE:TWTR) has more than doubled from early December levels, and trades at a three-year high.
Amazon.com, Inc. (NASDAQ:AMZN), Microsoft Corporation (NASDAQ:MSFT), and Facebook Inc (NASDAQ:FB) all sit within 2% of all-time highs. Nvidia Corporation (NASDAQ:NVDA) and Netflix, Inc. (NASDAQ:NFLX) are in the same ballpark.
With little news driving those stocks, trading is going to come down to valuation. If tech investors are willing to pay near-record-high multiples for the sector’s leaders, multiples elsewhere in the market may be set to move higher as well.
The stock market today appears to be pricing in a decent chance of the merger moving forward, which would be good news for the media space.
It would clear the path for a potential bidding war for Twenty-First Century Fox Inc (NASDAQ:FOX,FOXA) between Walt Disney Co (NYSE:DIS) and Comcast Corporation (NASDAQ:CMCSA). Plus, it likely would lead to further consolidation in the media sector.
Good news for T-TWX could also raise the odds of a tie-up between Sprint Corp (NYSE:S) and T-Mobile US Inc (NASDAQ:TMUS). And it could embolden buyers in other industries as well. M&A could help the market as a whole. And it could send indices to new highs.
All told, even in a “quiet” week, there’s plenty to digest. And it looks like the events of the next few sessions won’t just move the stock market today. They could shape the market’s direction for the next few weeks – if not longer.
As of this writing, Vince Martin has no positions in any securities mentioned.