Stocks Extend Rally After Fed Chair Powell’s comments

Stocks closed higher after seeing some minor volatility following Fed Chair Powell’s comments about the Fed being more aggressive with rate hikes if inflation doesn’t come down in a clear way. He did, however, say that the Fed can be less aggressive if inflation does clearly come down.

Ten of the 11 S&P 500 sectors are trading higher, and growth and value stocks are rising together. The information technology (+2.2%), materials (+2.9%), and financials (+2.4%) sectors are leading the advance, while the consumer staples sector (-1.0%) sits this one out with a 1% decline.

Contrarian-minded buying efforts have taken fold following a BofA Global Fund Manager Survey that showed cash levels at their highest position (6.1%) since 9/11 and the largest underweight position in equities since May 2020. Moving to more fundamental news, growth concerns have been alleviated by a host of developments.

Namely, United Airlines (UAL) increased its Q2 unit revenue outlook, Shanghai reported no new COVID cases for three straight days outside quarantined zones, total retail sales for April rose 0.9% as expected while retail sales excluding autos rose 0.6% (consensus 0.3%), and industrial production for April jumped 1.1% (consensus 0.9%).

Home Depot (HD) could also be construed as a positive following its upbeat earnings results and guidance, but shares have pared early gains, perhaps because a closer look at the results reflected a decline in consumer demand amid inflation pressures. Customer transactions in Q1 were down 8.2% year-over-year.

Walmart (WMT) is decisively negative with a 11% decline after the company missed EPS estimates and lowered its FY23 EPS guidance, citing inflationary headwinds. WMT is predominately responsible for the decline of the consumer staples sector.

Elsewhere, the Treasury market is corroborating the reprieve in growth concerns through a sharp increase in the 10-yr yield (up nine basis points to 2.97%), although to be fair, the inflation comments from Home Depot and Walmart might be muddying this narrative. The 10-yr yield is sensitive to both economic and inflation expectations.

Total retail sales increased 0.9% month-over-month in April (consensus 1.1%) following an upwardly revised 1.4% increase (from 0.5%) in March. Excluding autos, retail sales rose 0.6% (consensus 0.3%) after increasing an upwardly revised 2.1% (from 1.1%) in March.