Market Rally Stalls, Stocks Decline: Weekly Recap

20 juin 2023

The stock market opened the week on a downward trend, with the Dow Jones Industrial Average falling nearly 300 points, signaling a pause in the recent rally that had propelled the market to levels not seen in over a year. The S&P 500 and Nasdaq Composite also experienced declines of 0.8% and 0.7% respectively.

The decline comes after a strong week for investors, during which the S&P 500 reached its highest level since April 2022. Both the S&P 500 and Nasdaq Composite recorded their best weekly performances since March, with the S&P 500 rising 2.6% and the tech-heavy Nasdaq adding 3.25%. These gains marked the fifth consecutive positive week for the S&P 500 and the eighth consecutive positive week for the Nasdaq.

However, on Tuesday, the market encountered resistance as it faced real valuation challenges. Cameron Dawson, an expert from NewEdge, noted that the markets were bumping against these significant resistance levels. Declining stocks outweighed advancing ones on the New York Stock Exchange, with the energy sector experiencing the largest drop of over 2%. Additionally, notable companies such as Intel, Nike, and Boeing contributed to the decline of the Dow, each falling more than 2%. Despite the overall downward trend, Nvidia stood out as an exception, with its stock gaining over 1% while other major indexes sagged.

Investors are now grappling with the question of whether the market can sustain its positive momentum. Some remain cautiously optimistic, finding reasons to continue the upward trajectory, while others are wary of potential negative factors such as the lingering possibility of a recession and the Federal Reserve's response to inflation concerns. Art Hogan, Chief Market Strategist at B. Riley Financial, emphasized the need for credible reasons to defy the forces of negativity and continue the market's upward grind.

Investor sentiment has been influenced by the Federal Reserve's recent decision to refrain from raising interest rates in June. Federal Reserve Chairman Jerome Powell clarified that the central bank has yet to make a definitive decision on future policies leading up to the July meeting. However, the Fed has projected two more quarter-point rate increases later this year. The decision to hold off on a rate hike in June marked a departure from the Fed's previous pattern of consistently raising interest rates.

Despite the uncertain outlook, investor bullishness has been on the rise, reaching its highest level since November 2021. Wall Street is closely monitoring the market sentiment in a shortened trading week with limited economic data. Many believe that the equity markets have reached their maximum stretch, with market participants cautious about missing out on potential gains in a new bull market.

In terms of economic indicators, U.S. housing starts in May surpassed economists' estimates, with 1.63 million starts recorded compared to the expected 1.39 million. This positive data provides some encouragement amidst the broader market fluctuations.

Looking ahead, investors will pay attention to the upcoming corporate governance event in New York City, where New York Fed President John Williams and Fed Vice Chair for Supervision Michael Barr will appear. Furthermore, Fed Chair Powell is scheduled to testify in front of Congress on Wednesday and Thursday, which could shed further light on the central bank's stance and future policies.

In terms of corporate earnings, investors are particularly interested in the quarterly report from shipping giant FedEx, set to be released after the closing bell on Tuesday.