S&P 500 (SP500) on Friday down 0.29% To close the week at 4124.08 points, achieving losses in three out of five sessions. Associated SPDR S&P 500 Trust ETF (New York: The Spy) decreased 0.25% for the week.
The weekly decline of the benchmark index the back of 0.8% He falls last week. Highlights of the week were the release of inflation data in the form of Consumer Price Index (CPI) and Producer Price Index (PPI) reports. The numbers indicated general moderation and led to market participants increasing their bets that the Federal Reserve will cut interest rates this year.
On Wednesday, the headline CPI for April came in at +0.4% which matched expectations while up slightly from March. On a yearly basis, the headline CPI moderated, which gave some support to the Fed’s pause scenario. On Thursday, the headline producer price index for April came out cooler than expected on a monthly and year-over-year basis.
On the other hand, the University of Michigan measure of consumer sentiment for May fell more than expected. Moreover, implied five-year inflation expectations rose to their highest reading in more than a decade.
Aside from data on inflation, an oft-ignored report by the Fed called the Survey of Senior Loan Officials Opinion (SLOOS) that was published on Monday, has taken on additional significance this week. The survey tracks bank loans to businesses and households and market participants were looking to them to get an idea of credit terms. Respondents reported tighter credit and weaker demand for business loans in the first quarter for both commercial and industrial loans and commercial real estate loans.
Speaking of lenders, tensions over the stability of the regional banking space continued to simmer during the week, with PacWest Bancorp (PACW) in the spotlight. Shares of the bank fell in extended trading Thursday after it pledged more collateral to allow additional borrowing under the Fed’s discount window, a move that came after it revealed it lost 9.5% of its total deposits last week.
Amid financial sector worries and mounting evidence of a slowing economy, markets seem to firmly believe central bank rate cuts are coming, despite no indication of this from federal policymakers and warnings from brokerages such as Wells Fargo. According to CME FedWatch, the odds of not raising interest rates at the Fed’s June Monetary Policy Committee meeting are about 83%. The odds of a 25 basis point cut at the next meeting in July are about 32%.
This week also saw the first quarter earnings season start to wind down. Major names reporting results this week included Disney (DIS), PayPal (PYPL), JD.com (JD) and Tyson Foods (TSN). Next week will see financial numbers from major retailers such as Walmart (WMT) and Target (TGT) which will give an idea of the consumer’s health.
Finally, market participants have been closely watching the proceedings surrounding the debt ceiling discussion. President Biden’s meeting with congressional leaders has now been pushed into next week amid ongoing negotiations and little progress, even as the so-called X-date approaches as early as June 1.
Turning to the weekly performance of the S&P 500 (SP500) sectors, nine sectors closed in the red, with Energy extending its decline for the second week in a row. Financial came third among the losers. Telecom services and consumer appreciation were the gainers, with the former up more than 4%. See below a breakdown of the weekly performance of the sectors as well as their respective SPDR sector ETFs from May 5th through May 12th:
#1: Communication services +4.34%SPDR Telecom Sector Selection Fund (XLC) +2.37%.
No. 2: Consumer discretion +0.61%Consumer Discretionary Sector SPDR ETF (XLY) +0.43%.
#3: Consumer staples -0.01%Consumer Staples Select Sector SPDR ETF (XLP) -0.08%.
#4: Utilities -0.30%and define the utility sector SPDR ETF (XLU) flat.
#5: IT -0.33%Technology Select Sector SPDR ETF (XLK) -0.19%.
No. 6: real estate -0.98%Sector Selected Real Estate SPDR ETF (XLRE) -0.93%.
No. 7: Industries -1.15%Industry Specific SPDR ETF (XLI) -1.04%.
No. 8: healthcare -1.16%and an SPDR ETF (XLV) for the healthcare sector -1.05%.
No. 9: Financial data -1.35%and a SPDR ETF (XLF) in the selected financial sector -1.33%.
Figure 10: Materials -1.99%Materials Identification Sector SPDR ETF (XLB) -1.96%.
No. 11: Energy -2.16%Energy Sector SPDR ETF (XLE) -2.13%.
Below is a chart of 11 sectors’ year-to-date performance and how they’re doing compared to the S&P 500. For investors looking to the future of what happens, take a look at Alpha Catalyst Watch for next week’s breakdown of the actionable events that stand out.