Though it was a short one, this week was a comeback week for the market and Friday truly ended it with a bang. The major indices had much room to recover this week, being down between 7% and 12% for the month.
We saw a momentum-driven bounce from what investors apparently believed was in oversold territories. It wasn’t a widespread rebound however, with most of the rebound being focused on growth stocks.
Standouts this week were the mega-cap stocks that showed some renewed confidence that their earnings would hold up better than anticipated in this tough economic climate. The Vanguard Mega-Cap Growth ETF ($MGK) gained 8.0%, however, it is still down 3.6% for the month and 26.4% for the year.
The bounce in mega-caps solidified the performance of the consumer discretionary, communication services, and information technology sectors, all of which were up by at least 7%.
However, the mega-cap’s strength was matched by stocks within countercyclical sectors and the weakness of cyclical sectors. For example, healthcare, utilities, and consumer staples were all up at least 6.6% and beat the S&P this week. On the other hand, energy (which was actually down over 1%), materials, industrials, and financials all underperformed. If it wasn’t for Friday’s strength, the separation would be even more noticeable.
This week, Fed Chair Powell’s semiannual monetary policy testimony to the Senate Banking Committee on Wednesday and the House Financial Services Committee on Thursday also focused on growth matters. Concern was voiced on how the Fed plans to achieve a “soft-landing” with an aggressive rate approach, to which Powell acknowledged it will be a challenge.
Following the testimony’s, the Fed’s stress test on whether banks would be able to keep lending under a sever recession scenario showed promising results. That news combined with some strong new home sales data for May powered the rally on Friday to close the week. The fear index moved back from extreme fear to just fear on Friday. The rally pushed the market to its first winning week this month. The S&P crossed the 3,900 level on Friday and closed near its high of the day.
Next week, potentially impactful items on the economic calendar include a GDP reading forecasted flat at -1.50%, China’s PMI forecasted down one point to 48.60, and the ISM manufacturing PMI to end the week. Overall, it’s not the most important week we’ve seen for economic news, so there is a chance we see the rally continue into next week.
Be ready to take advantage when opportunities present themselves and get one step closer to being financially independent with each dividend stock purchased. Review how I did that this week with my buys and my plan for what stocks to watch next week in our weekly update here.