The S&P 500 Charges Higher on Promise of AI Tech

The fourth trading week of May 2023 had started out to be a gloomy one for the S&P 500 (Index: SPX). Several Federal Reserve officials signaled early in the week they were considering continuing the Fed's ongoing series of rate hikes in June because of their concerns U.S. inflation has not sufficiently abated.

That potential was enough to send the index down nearly 1.9% from the previous week's close by Wednesday, 24 May 2023.

But the fear that dragged stock prices down reversed during the next two trading days, as a "Unprecedented. Cosmological. Unfathomable." earnings report and outlook from Nvidia (NASDAQ: NVDA) sparked a speculative fury benefiting information technology firms advancing on the potential of their new Artificial Intelligence (AI) systems.

That speculative fury drove the level of the S&P 500 some 2.2% higher from where it bottomed, enough to boost the index by 0.3% from the previous week's close to 4205.45, its highest level to date in 2023. And that was *despite* Friday, 26 May 2023's confirmation U.S. inflation is running hotter than expected, all but guaranteeing the Fed will hike the Federal Funds Rate in June 2023.

That volatile action is shown in the latest update to the alternative futures chart, where we find the index' trajectory is still well within the redzone forecast range.

More stuff happened during the week that was, which we've captured in the week's market-moving headlines. Once again, we've all but omitted headlines related to the debt ceiling debate in the U.S., which still isn't moving the needle for stock prices in any meaningful way.

Monday, 22 May 2023

• Signs and portents for the U.S. economy:
• Oil rises 1% as supplies shrink, demand seen higher
• Inflation has eroded U.S. households' financial security, Fed survey shows
• Fed minions signal rate hikes are coming back on the table, say bank problems aren't over, expect unemployment to rise:
• Fed's Kashkari open to holding rates steady in June, WSJ reports
• Fed's Kashkari cautions against all-clear on banking woes
• Fed's Daly offers no hint on prospect of June rate hike
• Fed's Daly: Expects unemployment rise as price of controlling inflation
• Bullard: Rates may still need to rise another half-point this year
• Bigger trouble developing in Asia:
• Japan March core machinery orders fall for 2nd straight month
• South Korea May 1-20 exports fall 16.1% on year
• ECB minions excited to keep hiking rates higher:
• ECB's de Cos still sees 'some way to go' on policy tightening
• S&P 500 Rises 0.02% to 4192.63

Tuesday, 23 May 2023

• Signs and portents for the U.S. economy:
• Oil rises as US gasoline supplies tighten, Saudi says: 'watch out'
• US new home sales, business activity rise to 13-month highs
• Former Fed minion worries about wage inflation, Fed minions' choice to focus on boosting jobs rather than inflation did damage:
• Ex-Fed chief Bernanke says labor costs becoming more prominent in inflation
• Fed's jobs-weighted framework caused more problems than it fixed -research
• Growth signs developing in Japan, Eurozone:
• Japan's factory activity expands for first time in 7 months- PMI
• Euro zone business growth solid in May but shows signs of easing -flash PMI
• Services drive acceleration in German business activity in May -flash PMI
• French business activity grows at slowest pace in four months in May - flash PMI
• ECB minions urged by German bankers to keep hiking rates:
• ECB must keep hiking to tame inflation 'poison', Deutsche Bank CEO says
• ECB needs several more rate hikes, Bundesbank chief Nagel says
• S&P 500 Falls 1.12% to 4145.58
• Visa, Intel share losses contribute to Dow's nearly 200-point drop

Wednesday, 24 May 2023

• Signs and portents for the U.S. economy:
• Oil prices gain 2% on falling U.S. stockpiles, Saudi warning
• Fed minions thinking about more rate hikes, starting to get on board with resetting inflation target higher:
• Fed agreed need for more rate hikes after May meeting was 'less certain'
• Murmurs grow within Fed about tweaking 2% target once inflation recedes
• Fed's Waller sees a rate 'hike' or a 'skip' in June, but no 'stop'
• Fed's Waller: inverted yield curve may signal belief in falling inflation
• Central bankers reaching the end of the line for rate hikes:
• NZ central bank signals done raising rates after hiking to 14-year high
• Taiwan central bank to weigh inflation, GDP in next rate move
• Wall Street sinks as stocks tumble worldwide
• US action on short-sellers likely in 'next few months' -DOJ official

Thursday, 25 May 2023

• Signs and portents for the U.S. economy:
• U.S. weekly jobless claims rise moderately; first-quarter GDP growth revised up
• DBRS Morningstar puts U.S. triple-A rating on downgrade warning
• Fitch puts US rating on negative watch as debt deadline looms
• Oil settles lower as Russia downplays additional OPEC+ cuts
• US labor market resilient; declining profits a red flag for economy
• Fed minions still thinking about pausing rate hikes:
• Fed's Collins open to pausing rate hikes at June meeting
• Bigger trouble developing in the Eurozone:
• German economy entered recession as inflation hurts consumers
• BOJ minions thinking about changing up never-ending stimulus as economic outlook improves:
• BOJ's Ueda says targeting shorter-duration bond yield among future options
• BOJ may abandon bond yield cap this year - govt panellist
• Japan raises view on economy for 1st time since July 2022
• Wall Street ends higher as Nvidia sparks rush for AI stocks
• Nvidia close to becoming first trillion-dollar chip firm after stellar forecast

Friday, 26 May 2023

• Signs and portents for the U.S. economy:
• Oil prices up amid OPEC+ supply cut uncertainty
• US consumer spending surges in April; inflation heats up
• Fitch puts Fannie Mae, Freddie Mac on negative watch as US debt deadline looms
• As US credit risk looms, former S&P officials see 2011 downgrade as vindicated
• US core capital goods orders unexpectedly rebound in April
• IMF says U.S. should tighten fiscal policy to help cut persistent inflation
• Fed minions get data to make them rethink pausing rate hikes:
• Strong US consumer spending, inflation readings put Fed in tough spot
• Fed 'pause' on rate hikes in doubt after strong US data
• Instant view: Stubborn US April PCE inflation revives focus on June Fed hike
• BOJ minions expected to keep never-ending stimulus alive until sometime in 2024:
• BOJ will keep YCC until 2024, three-quarters of economists say: Reuters poll
• ECB minions getting less worried about inflation:
• ECB's Lane pushes back on core inflation worries
• Wall Street rallies, European shares see biggest gain in 2 months
• The tech trade is back, driven by A.I. craze and prospect of slowing Fed hikes
• The S&P 500 is up 8% this year, but most stocks are down—here’s what it means for your money

Following personal consumption expenditure data that revealed higher than expected inflation, the CME Group's FedWatch Tool now projects the Federal Reserve will hike the Federal Funds Rate by a quarter point when its Open Market Committee meets on 14 June 2023. That would bring the Federal Funds Rate to a target range of 5.25-5.50%, which the tool anticipates will be the peak for the series of rate hikes that began in March 2022. However, the FedWatch Tool anticipates the Fed will then wait until its 1 November (2023-Q4) meeting to initiate a series of quarter point rate cuts at six-to-twelve-week intervals to address building recessionary conditions in the U.S. economy.

The Atlanta Fed's GDPNow tool estimate of the real GDP growth rate for 2023-Q2 plunged to +1.9% from the +2.9% growth rate it anticipated a week earlier.

Image credit: Bullfight at San Marcos Fair, Aguascalientes, Mexico by Tomas Castelazo via Wikimedia Commons. Creative Commons. Attribution-ShareAlike 3.0 Unported (CC BY-SA 3.0).