The week opened with reassurances that the Fed would not change monetary policy , helping to move the dialogue off inflation and turn the trade back toward growth. However, caution remained. There were gains, but some indecision in the indexes remained, and rotation was back into value and defensive plays at the end of the week.
Growth sectors stole the show this week as investors put inflation worries aside and boosted Communications ( XLC ) and Technology ( XLK ) early in the week. The focus was on the growth sectors from Monday to Wednesday. Technology faded back in the list, buy Consumer Discretionary ( XLY ) joined Communications to end the week at the top of the list.
Little by little. That’s been how the index gains have come this week. Higher lows pushed up higher highs through the week as investors grapple with a mix of economic news and shrugged off inflation data. It was the same for Friday. Price index data was higher, but it didn’t seem to bring any surprises. Consumer data was a mix of results against expectations, causing a bit of uncertainty. Add a three-day weekend, and investors moved into defensive plays.
Positive employment and durable goods orders data gave a boost to the cyclical sectors today. Investors rotated out of big tech and some growth stocks and into value stocks and small caps. Even so, there were a broad set of gains on higher volume , even in the tech-heavy Nasdaq.
Investors put their inflation worries aside today and jumped back into growth and small-cap stocks. The breadth of gains across stocks on higher volume in the indices shows the kind of accumulation we’ve wanted. There is still overhead supply to deal with among many growth stocks, but today is a move in the right direction.
The indices pulled back a bit from yesterday’s gains after consumer confidence numbers were lower than expected, indicating some possible bumps in the economic recovery. That left us still waiting for a higher volume advance with more breadth in gains across the market.
The Fed made new promises today to keep an easy monetary policy , helping boost growth stocks. Stocks that suffered from inflation fears were the ones that had the most gains today.
Are you tired of hearing about inflation yet? Well, it’s still very much the focus of investors and driving the wild up-and-down movements in the Nasdaq. This week’s most crucial moment was clearly on Wednesday at 2:00 pm when the Fed released the minutes from last month’s meeting. Investors poured over the report looking between the lines for hints of inflation concerns and potential fed action to control it.
Sector performance provides some clues this week on how investors are thinking about inflation and the Fed. Just like the market character changed around the Wednesday release of the Fed meeting minutes, the sectors also saw a change in leadership. It still remains to be seen if that new character sticks for the coming weeks, or gets disrupted as the inflation story unfolds.
Big tech and growth stocks paused after two days of gains, while investors boosted recovery stocks after good economic data in the morning. The purchasing manager indexes for Manufacturing and Services were higher than expected, indicating an uptick in demand in both sectors.