S&P 500 (SP500) on Friday advanced 3.48% for the week to close at 4,109.31 points, recording gains in four out of five sessions. Its companion SPDR S&P 500 Trust ETF (NYSEARCA: A SPY) up 3.45% in a week.
Weekly performance was the best of the reference index since the beginning of November last year. Sentiment was helped by a combination of factors: fears of financial contagion receding after no fresh news on the banking crisis; renewed buying of growth stocks such as consumer discretionary and technology; and favorable economic data that strengthened the case for the Federal Reserve to consider ending its interest rate hike campaign.
With financial regulators and other lenders stepping in to stem the fallout from the worst banking crisis in 14-and-a-half years, investors appeared to have regained their appetite for risk during the week. The Senate Banking Committee also held a hearing on the recent bank closures, which put the spotlight on failings in the overall regulatory system.
During the week, the focus returned from financial stability to the Fed’s policy direction. Market participants were betting that the central bank would not be willing to raise rates further amid the banking crisis. Moreover, economic data in the form of a rise in weekly jobless claims along with a moderate core personal consumption index for March — the Fed’s preferred gauge of inflation — bolstered the case for an end to rate hikes.
However, Fed speakers remained cautious throughout the week, signaling that inflationary pressures are still very high and that the central bank is keeping the door open to further interest rate hikes.
According to the CME FedWatch tool, markets are now pricing in a ~52% chance of no hike at the central bank’s monetary policy committee meeting in May, while the odds of a 25 basis point hike are ~48%. More importantly, the markets seem to believe that the top interest rate would now reach 5.00% to 5.25% from the current level of 4.75% to 5.00%.
Risk-on sentiment during the week led traders to pick up tech stocks – which have been avoided for most of the past year. Apart from the FAANG group, chip and semiconductor companies also saw significant buying. A rally in Micron Technology ( MU ) and Intel ( INTC ) helped markets post solid gains on Wednesday. Meanwhile, NVIDIA (NVDA) has jumped more than 80% this year, helped in part by growing interest in the field of artificial intelligence.
Renewed interest in tech stocks has helped the Nasdaq 100 return to bull market territory, with the index up more than 20% from its closing low last December. The tech-heavy average also posted its best quarterly performance since June 2020 on Friday.
In other economic data during the week, major concerns about the housing sector did not materialize, with pending home sales rising for the third month in a row in February and mortgage applications increasing over the past week.
When we look at the weekly performance of the S&P 500 (SP500) sector, it was a sea of green, with all 11 of them making gains. Energy topped the charts, adding more than 6%. Consumer Discretionary and Real Estate round out the top three with advances of more than 5% each. Financials recovered north of 3%. Below is a breakdown of the weekly performance of the sectors as well as their companion SPDR Select Sector ETFs from March 24th to close on March 31st:
#1: Energy +6.17%and Energy Select Sector SPDR ETF (XLE) +6.34%.
#2: Consumer discretionary rights +5.58%and Consumer Discretionary Select Sector SPDR ETF (XLY) +5.62%.
#3: Real estate +5.16%and Real Estate Select Sector SPDR ETF (XLRE) +5.27%.
#4: Materials +4.93%and Materials Select Sector SPDR ETF (XLB) +5.01%.
#5: Industry +4.40%and Industrial Select Sector SPDR ETF (XLI) +4.41%.
#6: Finances +3.74%and Financial Select Sector SPDR ETF (XLF) +3.74%.
#7: Information technology +3.41%and Technology Select Sector SPDR ETF (XLK) +3.46%.
#8: Utilities +3.05%and Utilities Select Sector SPDR ETF (XLU) +3.04%.
#9: Staples for general consumption +2.50%and Consumer Staples Select Sector SPDR ETF (XLP) +2.38%.
#10: Health care +1.76%and Health Care Select Sector SPDR ETF (XLV) +1.70%.
#11: Communication services +1.46%and SPDR fund for selected sector communication services (XLC) +2.33%.
Below is a chart of the year-to-date performance of 11 sectors and how they fared relative to the S&P 500. For investors looking ahead to what’s going on, check out the Seeking Alpha Catalyst Watch for a breakdown of the action events that stand out next week.