Stocks Rebound: Financials Lead
3:11 pm Monday, May 23rd, 2022
U.S. stocks rose in Monday’s trading, led by the financial sector, as the S&P 500 pushed away from bear-market territory after flirting with such levels in a volatile trading session Friday.
Today, therefore, is largely an opportunistic rally effort predicated on the thinking that the stock market is oversold and due for a meaningful rebound bid.
There have been some news catalysts to help the effort, namely press reports suggesting Broadcom (AVGO) is in talks to acquire VMWare (VMW) and that Electronic Arts (EA) might be looking for a merger partner or possible sale of the company, an acknowledgment by President Biden that he is considering lowering come Chinese tariffs to help ease inflation pressures, and indications that Shanghai has seen an improvement in COVID cases.
The latter has been counteracted by other reports, however, highlighting a pickup in COVID cases in Beijing that are fostering concerns about a shift to more restrictive measures being imposed there. Still, that consideration has not overwhelmed a market that seems intent on trying to forge a more concerted rebound effort from a deeply oversold condition.
Sure enough, one of last week’s worst-performing sectors — the consumer staples sector (+2.1%) — finds itself in a leadership post today along with the financial (+3.3%), energy (+1.7%), and information technology (+1.9%) sectors.
The financials have jumped ahead of the sector pack, energized by JPMorgan Chase (JPM) raising its net interest income outlook and keeping its FY22 expense outlook unchanged. Fellow Dow component Goldman Sachs (GS) has capitalized on that news along with Citigroup (C) and others.
Conversely, the consumer discretionary sector (-0.02%) remains a distinct laggard, pressured by weakness in Amazon.com (AMZN), a Citigroup downgrade of several retail names (ANF, AEO, CRI, GPS, KSS, RL, PLCE, UAA), and reports that average gas prices keep setting new record highs.
The semiconductor industry has also remained a pocket of relative weakness, evidenced by the 0.1% decline in the Philadelphia Semiconductor Index.
With the overall stock market rebounding today, Treasuries have done some backtracking. The 10-yr note yield is up eight basis points to 2.86%. That weakness, however, isn’t all about stocks. The euro is up big today against the dollar after ECB President Lagarde teased the prospect of exiting negative rates by the end of Q3, encouraging a shift in interest rate differential trades.
