With stocks up nearly across the board today, some positive sentiment in the market appears to be building. This week is on pace to be a green one, which is great. We’ve only had one positive week in the markets in the past 11 weeks or so (depending on which index investors look at).
The question is — what’s driving today’s increase? After all, some rather negative news recently came to light, with underwhelming results from the University of Michigan’s consumer sentiment reading. This gauge hit 50, its lowest level since 1952, when the university first started collecting consumer sentiment data. That’s a long time — and the fact consumers are so uncertain right now is definitely not a positive.
Let’s dive into what the markets are factoring in today.
Why Are Stocks Up Today?
This historically low consumer sentiment reading is concerning. That said, the market appears to be taking a “bad news is good news” approach to the numbers. That’s because the lower consumer confidence goes and the higher the chance of a recession, the less likely the Federal Reserve will send interest rates higher. At least, that’s the theory.
In addition to the consumer sentiment data released today, home sales data for May has also come out. These results were much more positive than expected, with new home sales actually up nearly 11% for the month. Perhaps rising interest rates aren’t hitting consumers as hard as some think.
Finally, the market is still digesting recent testimony from Fed Chairman Jerome Powell. During his testimony to the House Financial Services Committee, Powell reaffirmed the Fed’s top priority: taming inflation. This rhetoric has bolstered investor confidence.
It’s also clear that the Fed is intent on being data-dependent when it comes to rate hikes. Should the market fall into a recession, the next discussion will be about cutting rates. Accordingly, while we’re still in the midst of a hiking cycle, the market may be keen to price in a future rate-reduction cycle. It’s forward-looking after all.
On the date of publication, Chris MacDonald did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
