Markets Look To Close Out A Strong Q1

Key Takeaways

• Can Stocks Keep Going?
• Apple, Microsoft And Tesla Leading The Charge
• PCE Shows Inflation May Be Slowing

It has been an interesting quarter for stocks. Since the end of December, the S&P 500 has gained nearly 5% while the Nasdaq Composite has gained nearly 15%. Still, that doesn’t tell the full story of what has been going on in markets.

Two interest rate hikes. A banking sector crisis. A recent rally in gold. Beneath the surface, there is quite a bit of activity, yet stocks have been resilient in the face of it all. The question I have now is, what will be the catalyst that keeps stock moving higher as we come up on 4200 in the S&P 500, an area of resistance, and head into the next quarter?

At tastytrade, we’ve seen a lot of buying in stocks that have rallied big this year, like Apple
AAPL
(up 25% this quarter), Microsoft
MSFT
(up 18%) and Tesla (up 59%). Those are what I call the “confidence” stocks for retail investors and have historically led the “buy the dip” crowd. I think it would be a positive for markets if we can see buying activity spread to other names that haven’t yet participated to the same degree.

While I do not think we’re out of the woods yet with respect to the banking crisis, I do think the level of contagion many feared has been averted. Although stocks in the banking sector remain well off their highs for the year, many seem to have at least stabilized. Hopefully, we have seen the worst of this but we now need to see how it impacts the broader economy because the crisis has created tighter credit conditions. Tighter credit conditions will likely act similarly to how an interest rate increase might and we need to see if that slows down the economy enough to satisfy the Fed.

Speaking of the Fed. This morning’s latest Personal Consumption Expenditures (PCE) report showed a slowdown in inflation. On a month-over-month basis, prices rose 0.3%, just below expectations of 0.4%. For the full year, prices increased 4.6%, down from last month’s 4.7%. While the yearly number is still higher than the Fed’s stated inflation goal of 2%, the number is slowing and the full impact of both rate hikes and the banking crisis remain to be seen.

A couple other interesting developments worth watching are in gold and the US dollar. It looks like the dollar will close down on the quarter and that could be forecasting a pause in rate hikes. Meantime, gold is up 8% this year, which may be a sign markets are still hedging themselves on inflation.

To the lay person who may be less concerned with all the subtle nuances, it’s been a good quarter for stocks. Hopefully, today’s PCE news can help keep the party going as we kick off Q2 next week. At the same time, it’s important to keep in mind volume has been slow this week and probably will be next week, which is a holiday shortened week. Also, despite markets being closed next Friday, we will get the latest jobs number and I’m very curious how markets will position themselves heading into that report. As always, I would stick with your investing plan and long term objectives.

tastytrade, Inc. commentary for educational purposes only.