Stocks Surge on Economic Optimism

What you need to know…

The S&P 500 Index ($SPX) (SPY) on Friday closed up +3.06%, the Dow Jones Industrials Index ($DOWI) (DIA) closed up +2.68%, and the Nasdaq 100 Index ($IUXX) (QQQ) closed up +3.49%. 

Stock indexes Friday closed sharply higher, with the S&P 500, the Dow Jones Industrials, and the Nasdaq 100 posting 2-week highs.  An easing of recession fears sparked a rally in stocks Friday after St. Louis Fed President Bullard said that recession fears are overdone. Also, Goldman Sachs said, “we don’t have a recession in our baseline forecast.”  In addition, inflation concerns receded and gave stocks a boost after the University of Michigan’s 5-10 year inflation expectations rate fell to 3.1% from a 14-year high of 3.3%.  Stocks extended their gains after U.S. May new home sales unexpectedly rose.

St. Louis Fed President Bullard said he favors "front-loading" of rate hikes to contain inflation, and "it is a little early to have the debate about recession probabilities in the U.S."

Goldman Sachs on Friday said, “we don’t have a recession in our baseline forecast.  If we do have a recession, it’s likely that it would be on the shallower end as private-sector balance sheets are in better shape than at the end of previous business cycles.”

JPMorgan Chase is calling for stocks to rise 7% next week as pension and sovereign wealth funds rebalance their portfolios at the end of June for the quarter and month-end.

U.S. May new home sales unexpectedly rose +10.7% m/m to 696,000, stronger than expectations of a decline to 590,000.

The University of Michigan U.S. Jun consumer sentiment index was revised downward by -0.2 to a record low of 50.0 from the originally reported 50.2.

Data from EPFR Global shows investors continue to pull money from equity funds.  About $16.8 billion exited global stock funds in the week through June 22, with U.S. equities seeing their first outflow in seven weeks at $17.4 billion.

Today’s stock movers…

Technology stocks moved sharply higher Friday to lead the overall market higher.  Okta (OKTA) closed up more than +8% to lead gainers in the Nasdaq 100.  Also, Meta Platforms (META) closed up more than +7%, and Datadog (DDOG), Lam Research (LRCX), Atlassian Corp Plc (TEAM), and ASML Holding NV (ASML) closed up more than +6%.  In addition, Alphabet (GOOGL), Advanced Micro Devices (AMD), Crowdstrike Holdings (CRWD), and Nvidia (NVDA) closed up more than +5%.

Cruise-line operators rallied Friday after Carnival reported a Q2 loss of -$1.61 per share, a smaller loss than expectations of -$1.83.  Royal Caribbean Cruises (RCL) closed up more than +15% to lead gainers in the S&P 500.  Also, Norwegian Cruise Line Holdings (NCLH) closed up by more than +15%, and Carnival (CCL) closed up by more than +12%.

Casino and hotel stocks rose Friday after earnings results from Carnival today suggest that travel demand is strong.  Caesars Entertainment (CZR), Wynn Resorts (WYNN), and Penn National Gaming (PENN) closed up more than +12%.  In addition, MGM Resorts International (MGM) closed up more than +11%, and Expedia Group (EXPE) and Airbnb (ABNB) closed up more than +8%.

U.S. bank stocks moved higher Friday after the Federal Reserve announced late Thursday that all banks passed its annual stress test.  Wells Fargo (WFC) closed up more than +7%.  Also, Goldman Sachs (GS), Morgan Stanley (MS), Fifth Third Bancorp (FITB), and Capital One Financial (COF) closed up more than +5%.  In addition, Discover Financial Services (DFS), M&T Bank (MTB), and US Bancorp (USB) closed up more than +4%.

CalAmp (CAMP) plunged more than -30% Friday after reporting Q1 revenue of $64.7 million, well below the consensus of $69.4 million. 

Across the markets…

Sep 10-year T-notes (ZNU22) on Friday closed down by -10 ticks, and the 10-year T-note yield rose +3.8 bp to 3.125%.  A sharp rally in stocks Friday weighed on T-note prices.  Also, comments Friday from St. Louis Fed President Bullard weighed on T-notes when he said he favors “front-loading” on Fed rate hikes. T-notes recovered from their worst levels on reduced inflation fears after the University of Michigan’s 5-10 year inflation expectations rate was revised lower to 3.1% from a 14-year high of 3.3%. 

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