Last week, the Dow and S&P 500 recorded their best weekly gains since November 2020. The Dow closed the week up 6.2%, ending an eight-week sequence of deficits. For their part, the S&P 500 posted gains of 6.5%, while the NASDAQ added 6.8% on the week, finishing positive after seven consecutive weeks of losses.
"The market is digesting last week's strong rally and trying to find its footing," said Peter Boockvar, CIO of Bleakley Advisory Group. "We're still far from out of the woods here in terms of the major overhangs, namely inflation, monetary tightening and rising rates."
After a rather turbulent May, the indices nevertheless managed to finish better than expected. Just 11 days ago, US equities briefly plunged into bear territory following disappointing quarterly results from Target and Walmart. On May 20, the S&P 500 also found itself in bear territory, falling 20% from its last peak, while the Dow experienced its longest weekly losing streak since 1923 in May, falling for eight consecutive weeks before last week's rally.
Finally, the S&P 500 erased its losses accumulated throughout the month and recorded its best weekly gain since November 2020, ending the month slightly up, as did the Dow. For its part, the NASDAQ ended May down 2.1%, whereas in April the index had fallen 13%.
"Conditions have become oversold for the S&P 500," said Kristina Hooper, chief macro strategist at Invesco. "Sentiment is so negative, there are so many prices, so there's so much more potential for a positive surprise. If the Fed is under - even a little under - that's a good surprise and inherently offers upside potential. It could be argued that a recession is largely built into equities. And so a soft landing would be a nice surprise," she declared.
The three main indices ended Wednesday's session down, with the Dow down 0.54%, the NASDAQ losing 0.72% and the S&P 500 shedding 0.75%. The markets started the day well, but turned around following the publication of the ISM manufacturing activity index in the United States, which turned out to be better than expected.
"The ISM index [...] and its stronger-than-expected price index component were the catalysts" that propelled the dollar higher, said Brad Bechtel, Director of Foreign Exchange at Jefferies. "We're going to have periods in the coming months when the market thinks we need to do more to fight inflation, and periods when it thinks we need to do less, and recession fears take over," explained the analyst.
Investors are also concerned by comments made by Jamie Dimon, the head of JPMorgan, who warned at a conference that economic challenges remain.
"You know, I said it was storm clouds, but I'm going to have to change it... it's a hurricane," Dimon said Wednesday at a financial conference in New York. While conditions look "good" at the moment, no one knows whether the storm is "a minor hurricane or Superstorm Sandy", he added. "You'd better get ready. JPMorgan is preparing and we're going to be very conservative with our balance sheet."
Salesforce shares were the session's big winner, ending the day up 9.93%. The customer relationship management platform reported better-than-expected quarterly results, even raising its guidance for the year. The company confirmed that the macroeconomic environment we are currently navigating has had no significant impact on its balance sheet.
The three main US indices ended Thursday's session higher, encouraged by OPEC's decision to increase production and investors' return to technology stocks. The Dow ended up 1.33%, the NASDAQ advanced 2.69%, and the S&P 500 gained 1.84%. Several stocks had a good session, with Tesla (+4.68%), Alphabet (+3.16%), Amazon (+3.15%), Nvidia (+6.9%) and Meta (+5.42% to $198.86) all posting gains.
"Bearish sentiment remains overdone and many of the upcoming earnings warnings should already be priced in. Stocks should begin to rise this summer as economic activity moderates," said Edward Moya, senior analyst at OANDA.
Indeed, even Microsoft's announcement of lower forecasts for the next quarter failed to reverse investors' positive sentiment. Its share price fell following the announcement, but still closed the session slightly up by 0.8%. All three major indices were on course to close the week higher on Thursday.
Markets opened lower on Friday as investors digested the stronger-than-expected jobs report. The Dow dropped 240 points, the S&P 500 gave up 1.2% and the NASDAQ lost 1.9%.
Oil
It was a good start to the week for black gold, with the price of a barrel of Brent rising above $120. "WTI and Brent are up, as the European Union is still trying to negotiate a ban on Russian oil," comments David Madden, analyst for Equiti Capital. "Opinions differ within the bloc regarding the embargo, and it seems that the measures will not be as severe as expected," he continues.
Prices continued to rise on Tuesday after the 27 countries making up the European Union agreed to an embargo on Russian oil, in an attempt to increase pressure on the country. "As a result, Europe will cut two-thirds of its oil imports from Russia, costing Russia around $10 billion in lost revenue," says the analyst.
The EU has announced that it will reduce its imports of Russian oil by around 90% by the end of the year, and will therefore have to find new suppliers. "New suppliers will have to be found for some 3 million barrels a day over the next few months," estimates Carsten Fritsch, analyst at Commerzbank. "The EU seems to be taking a greater interest in supplier countries in West Africa", notes the expert, citing flows from Nigeria, Angola and Cameroon. "For crude oil, there are already alternatives in the Middle East and North America," Olivier Gantois, President of UFIP Energies et Mobilités, recently told AFP.
Russia remains the world's biggest oil exporter, producing over 11 million barrels a day of crude, and exporting around 5 million daily. China also announced on Tuesday the lifting of the lockdown in several cities, signalling a return to a more vigorous economy.
However, the rise that began on Tuesday was short-lived, as according to an article in the Wall Street Journal, members of the Organization of the Petroleum Producing Countries (OPEC) could prevent Russia from participating in the production plan agreed last July. Even so, the black gold still recorded its longest run of monthly gains in over a decade.
OPEC+ announced on Thursday its intention to increase production by 648,000 barrels per day in July and August, ending the historic production cut OPEC+ implemented during the pandemic. It should be remembered that it was nearly 10 million barrels a day that the group had decided to withdraw from the market in April 2020. Prices have soared in recent months, reaching their highest level since 2008 in March.
The price of a barrel of oil started the day down by more than 2%, but eventually recovered after OPEC's announcement.
"In just 11 minutes (of meeting time), OPEC and its allies (OPEC+) agreed to end their production cuts sooner," comments Giovanni Staunovo, analyst at UBS. "With many members of the group having reached their production capacity, actual production increases will be lower and the group's spare capacity will continue to decline," he notes. For Jeffrey Halley, analyst for Oanda, the production increase of 648,000 barrels per day "over the next two months will not significantly alleviate the shortage of sanctioned Russian oil".
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