US Stocks Continue to Hit New High in Momentum Trade

The S&P 500 shook off concerns about a more hawkish Federal Reserve to post a record high this week, but activity in some areas of the market indicates concern over potential volatility ahead of key economic data and corporate profit reports.

Prior to the open, the PCE Price Index rose 0.4% m/m and the core-PCE Price Index, which excludes food and energy, rose 0.5% m/m (consensus 0.6%). On a year-over-year basis, they were up 3.9% and 3.4%, respectively. The 10-yr yield, which didn’t react initially, has since risen six basis points to 1.55%.

The sharp increase in long-term rates has benefited the top-performing S&P 500 financials sector (+1.2%) and has undercut many of the growth stocks within the information technology (-0.1%) and communication services (-0.04%) sectors.

Bank stocks were also keying off expectations for increased share buybacks and dividends following positive results from the Fed’s latest stress test. Separately, Nike (NKE 152.72, +19.11, +14.3%) has been another source of fuel for the value/cyclical trade given its 14% earnings-driven gain.

More plainly, the iShares S&P 500 Value ETF (IVE) was lower, while the iShares S&P 500 Growth ETF (IVW) trades fractionally lower.

As always there are exceptions to a trading theme. FedEx (FDX) was a lagging cyclical stock following its underwhelming earnings report, even though the company did guide FY22 EPS above consensus. Netflix (NFLX) outperformed after the stock was upgraded to Outperform from Neutral at Credit Suisse.

Longer-dated Treasuries ended the week on a lower note while shorter tenors spent the day near their flat lines. The Friday session started on a quiet note, but it wasn’t long before longer tenors slid from their starting levels. The release of a mixed Personal Income/Outlays report for May was met with an impulse bid, but the long bond slipped back to its flat line during the next few minutes while the 10-yr note turned negative about an hour after the start.