Market Insights

Investors may be pivoting to old-economy stocks as a new month begins and the market continues higher.

The S&P 500 rose 1.8 percent in the holiday-shortened period between Friday, May 26, and Friday, June 2. The broad index outperformed the technology-heavy Nasdaq-100 for the first time in six weeks as groups like materials, banks and industrials surged. That may suggest a shift in sentiment — especially because the change corresponded with a few other big events.

First, Congress and the White House struck a deal to raise the national debt ceiling. Second, job growth surprised to the upside as wage pressures eased in both the ADP and Labor Department reports. Those readings could point toward a “soft landing”: inflation slowing without a recession.

Third, the apparent pivot to non-tech cyclicals occurred at the beginning of a new month.

Fed Policy

Some less-prominent headlines added to positive views of the economy. April’s construction spending shot past forecasts as a historic wave of factory building accelerated. The government revised first-quarter labor productivity higher, reducing the argument of a wage-price inflationary spiral. The Federal Reserve’s Beige Book of economic conditions noted that “supply chain issues continued to improve” as freight costs fell. The Institute for Supply Management’s manufacturing report also noted that prices fell “in dramatic fashion.”

At least two voting members of the Fed suggested they want the central bank to keep interest rates unchanged at its big meeting next week:

• “We are close to the point where we can hold rates in place.” — Philadelphia President Patrick Harker
• “Skipping a rate hike at a coming meeting would allow the committee to see more data before making decisions about the extent of additional policy firming.” — Board of Governors member Phillip Jefferson

From AI to Regional Banks?

Every major sector rose last week, led by consumer discretionaries. However a sharp change occurred as the new month began on Thursday, with money pouring into banks, small caps, metals, energy and industrials. That contrasted with the tone since March, when the collapse of Silicon Valley Bank and the rise of artificial intelligence (AI) drew capital away from cyclicals into technology.

Homebuilders, the strongest non-tech group this year, continued to outperform.

Airlines also rose after American Airlines (AAL) issued strong guidance. The carrier cited lower fuel costs and higher revenue per seat mile. Semiconductors fell after a blistering two-week rally.

Charting the Market

The S&P 500 just had its highest weekly close since April 2022. The index appears to have moved through the top of a tight price range that began in late March. Some chart watchers may view those points as signs it’s begun a longer-term move to the upside. They may think the August high of 4325 is the next level to watch.

Cboe’s volatility index, or VIX, also did something potentially historic by closing at 14.6. That was the lowest close of the “fear index” since February 2020 — before the coronavirus pandemic.

The Week Ahead

This week’s calendar of events is relatively quiet, although there could be some important events in the bond market.

First, the U.S. Treasury will issuing large amounts of debt now that the borrowing limit has been raised. Traders will likely watch to see how well it’s absorbed — especially with substantial short interest in the securities. Second, discussion could focus heavily on the June 14 Fed meeting.

ISM’s service-sector index and factory orders are the main economic events today. Apple (AAPL) will host its Worldwide Developer Conference (“WWDC”). Palo Alto (PANW) might be active after replacing Dish Network (DISH) in the S&P 500.

Nothing important is scheduled for tomorrow.

Crude-oil inventories are on Wednesday, followed by jobless claims on Thursday.