Sentiment Improves for Equities are close in top of trading range

Ed Mertiri |
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Federal Reserve Chairman Powell made increasingly hawkish comments around future rake hikes early last week that sent treasury rates sharply higher (while moving bond prices lower). While there is still a slight inversion between the 3- and 10-year US treasury notes, the 10-year rate is moving back up towards a more normal yield curve pattern closing just below 2.5% on Friday.

While bond prices are dropping, equities are continuing their rebound. The S&P 500 closed up 1.8% for the week, coming closer to the previous resistance level of 4590 from earlier in the year. Sentiment was lifted by better-than-expected U.S. PMI data. Small cap was the only major US equity group to finish the week in the red, down -.6%. While last week included mostly “risk-on” trades, sentiment has not fully capitulated just yet.

In large caps, US growth led the week, up 1.9% versus 1.6% for the S&P 500 Value. Interestingly, value focused sectors like Energy, Materials and Utilities were all leaders for the week. Since they are all smaller weighted sectors than the much larger Information Technology sector, the smaller increase of 2.3% in Info Tech was a bigger contributor to the broad index, ultimately leading to growth’s outperformance.

We are seeing some early signs of investors returning to US equity market, but the sentiment isn’t as robust as it was just 6 months ago. Inflation is clearly weighing on sentiment. The markets may gyrate in a trading rage for several months before investors are able to break markets to higher highs.

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