It’s been another turbulent week for the market, but this week saw the S&P 500 remain above 4,000 points, despite predictions of negative manufacturing, supply, and jobs reports. If you did what we suggested last week and took some calculated risks in consumer staples and semiconductor stocks, it would have paid off big. Retail companies like Walmart (NYSE:WMT), Target (NYSE:TGT), and Costco (NASDAQ:COST) are all still looking bullish and are turning a profit, despite falling short of expected earnings this quarter. We stand by those watchlist picks for this coming week as well.
However, staying diversified and focusing on large-cap value is going to remain important. Keep those stalwart stocks in your portfolio to offer stability and potentially a steady dividend stream. Maybe the market is making a pivot right now, but this week and the coming week could be spoilers, so adding new positions on dips rather than buying the rallies makes sense.
Make or Break Time for S&P Bulls
The S&P 500 confirmed its bullish reversal yesterday, which means that the downward trend from the bearish market we were in is beginning to move in the opposite direction. So, what economic factors are contributing to this, and how can the sectors in the stock market that were oversold bounce back? Let’s dive in…
This week, we broke through the resistance level on the S&P 500 and came back on Tuesday, Wednesday, and Thursday to test and retest the new support level to ensure it will hold. And after yesterday’s price action, we got the confirmation that the retest has been successful, and the down-trending price level that served as resistance for most of the month of May, is now serving as a new support level for the S&P 500.
This could be the moment that makes or breaks the stock market’s chances for a new bullish trend. Be sure to check out last night’s livestream to find out what we’re watching to confirm this bullish move.
ISM, ADP, & BLS Reports
On Wednesday, the Institute for Supply Management (ISM) released its monthly manufacturing index, which has been in decline all year.
The Wall Street Journal had forecasted a decline once again; however, U.S.-based manufacturing activity actually rose 0.7%. Recent data from the manufacturing sector has been weak, so we predicted that a negative surprise on Wednesday could spook traders into a profit-taking mode through the end of the week.
One factor dragging down the figure is continuing supply-chain issues, although demand in the sector is good. Higher interest rates may be slowing the rate of home building, another issue that could be attributed to the slowdown.
The ADP National Employment Report was released Thursday, and while the numbers were positive, they were at a post-COVID low. Private payrolls were expected to add 202,000 jobs and missed that mark by about 74,000. That may suggest a lower demand for labor, despite job openings remaining high. We don’t think this is a big enough surprise to have a long-term impact on the market, but it is probably contributing to some volatility.
Just this morning, the Bureau of Labor Statistics (BLS) released the jobs and unemployment report for the month of May which includes growth numbers as well as wage inflation. Most economists have downgraded their expectations for May’s report, so it’s a low hurdle to jump over.
The BLS report said 390,000 new jobs were created in May, with the headline unemployment rate holding at 3.6% for the third month straight. It’s also noted that wages rose 0.2% on the month, up 5.2% on the year, a figure that will possibly add to concerns over the pace of wage inflations and its extended impact on the so-called second-round effects against surging food and energy prices. All of this is telling us that the U.S. labor market remained hot in May, even as tighter monetary conditions and inflation persists.
Tech Hits and Misses
Tech stock bellwether Microsoft (NASDAQ:MSFT) dipped 2% Thursday as the company predicted a revenue and earnings shortfall for the fiscal fourth quarter, blaming adverse foreign exchange rates for the drop.
Despite that ominous dip, Meta Platforms (NASDAQ:FB) surged 4.8% after COO Sheryl Sandberg announced her resignation. Other tech companies like NVIDIA (NASDAQ:NVDA), Zoom Video Communications (ZM), and Tesla (NASDAQ:TSLA) saw some nice gains, too. NVDA gained 6.9%, while ZM saw about a 4.3% gain and TSLA added 4.7%.
Our Strategic Trader readers had the chance to take some profits from MSFT and several other tech companies this week, while also capitalizing on some consumer staple stocks like Nike (NYSE:NKE).
The bottom line is that this particular phase of volatility doesn’t look like the start of another leg to the downside, but we still feel we need to be cautious and focus on income over adding risk to the portfolio.
We remain cautiously optimistic about the market going into summer, but we do expect some bumps along the way. In the short term, we are concerned about resistance and taking profits. The next round of inflation reports will come next week, so stay tuned.
In the meantime, if you have any questions about a particular trade or the market in general, subscribe to our Learning Markets YouTube channel and ask your questions during our Monday and Thursday night livestreams starting at 7:00 ET.
