Has the stock market started to recover?
May 29, 2021
4 min read
This story originally appeared on StockNews
The S&P 500 (SPY) has now posted gains in three consecutive days, although the indicators continue to show an increase in inflation. It looks like we are swimming in those calm waters that I spoke about on Monday, but I have to warn that the last few days have shown lighter than usual trading volume. So, is this the new normal, or will we revert to the volatility that so often prevailed the previous two weeks? Read below to find out….
(Please enjoy this updated version of my weekly POWR Value newsletter commentary).
Stocks started the week higher as concerns about inflation appeared to fade a bit after several Federal Reserve executives assured investors that inflation would be temporary. Investors pushed stocks higher across the board, with all three major indexes posting strong gains. Eighty-three percent of S&P 500 stocks rose, while twenty-two of Dow’s 30 components rose.
The market finished lower on Tuesday as investors digested disappointing economic data. The Conference Board’s consumer confidence indicator eased somewhat in May to 117.2 after a revised downward reading of 117.5 in April. In addition, new home sales fell 5.9% in April after a significant downward revision in March as an increase in property values restricts demand.
Stocks returned to their winning ways on Wednesday as the CBOE volatility index (VIX) hit its lowest point since early May. Although most of the major indices are increasing only slightly, as the volume of transactions has recently declined.
Stocks surged again on Thursday, with strong economic data lifting cyclical value stocks. Initial weekly jobless claims were better than expected. In fact, claims are at a new pandemic low, trending downward.
In addition, orders for capital goods rose 2.3% more than expected in April, the largest increase in eight months. Investors were also waiting for President Biden to unveil his budget on Friday.
The market ended the week higher on Friday, even with economic data pointing to lower spending and higher inflation. The core PCE deflator, which is the Fed’s preferred proxy for inflation, rose 3.1% year-on-year, the largest increase since 1992. Core PCE inflation is a measure of prices people pay for goods and services.
Overall, the S&P 500 and Dow Jones are up for the month, with gains of 0.55% and 1.93%, respectively. The Nasdaq Composite, on the other hand, is down 1.53% for May.
As investors, we are essentially in a waiting period. Many of the positive catalysts that have driven the market forward are disappearing. Trillions of fiscal stimulus are already moving through the economy. The Fed has nowhere to go except to raise rates, and the first quarter earnings season is over.
So to answer today’s headline, no, I don’t think the market has turned the corner. While we may see more days like Wednesday, Thursday and today, with lower trading volume, I still expect to see more volatility in the coming weeks as investors keep their eyes on inflation. and the Fed.
In addition, the valuations of most stocks are already reflecting an improving economy. But the key is that we are not invested in these stocks. While the market as a whole may need a new growth catalyst to drive the major indices up, we are in great shape to invest in deeply undervalued stocks.
These companies have shown steady growth and strong fundamentals, but luckily for us, they are trading at a discount.
What to do next?
The POWR Value portfolio was launched in early May and is off to a fantastic start.
What is the secret of success?
The portfolio derives most of its new picks from the Top 10 Value Stock strategy which has stellar annual returns of + 38.63%.
If you would like to see the current portfolio of value stocks, including the 2 brand new picks we made yesterday, consider starting a 30 day trial by clicking the link below.
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All my wishes!
Chief Value Strategist, StockNews
Editor, POWR Value Newsletter
SPY stock closed at $ 420.04 on Friday, up $ 0.75 (+ 0.18%). Year-to-date, SPY has gained 12.71%, compared to a% increase in the benchmark S&P 500 over the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the chief value strategist for StockNews.com and the publisher of the POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services firms, hedge funds and online publications. David enjoys researching and writing about stocks and markets. It takes a fundamental quantitative approach in evaluating stocks for readers.
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