The stock market had a volatile but positive week, as investors weighed the impact of surprise oil-production cuts by OPEC+, strong earnings from big banks, and mixed signals from the Federal Reserve and economic data.
The Dow Jones Industrial Average rose 0.98% on Friday, closing at 33,601.15 points, a new record high. The S&P 500 also gained 0.37%, ending at 4,124.51 points, another all-time high. The Nasdaq Composite, however, slipped 0.27%, finishing at 12,189.45 points, as some tech stocks lost momentum.
The main catalyst for the market rally on Friday was the unexpected decision by OPEC+ to extend their current oil output cuts into May, instead of increasing production as previously planned. This boosted oil prices by more than 4%, lifting energy stocks and other sectors that benefit from higher inflation expectations.
The energy sector was the best performer in the S&P 500 this week, gaining 8.9%. The financial sector was also strong, rising 6%, as major banks reported better-than-expected earnings for the first quarter. JPMorgan Chase, Goldman Sachs, Wells Fargo and Bank of America all beat analysts’ estimates for revenue and profit, thanks to robust trading activity, loan growth and lower credit losses.
On the other hand, some tech stocks struggled this week, as investors rotated out of high-growth names that have been under pressure from rising bond yields. The Nasdaq 100 index fell 0.8% this week, lagging behind the broader market. Some of the big losers in tech included C3.AI, which plunged 26% after disappointing guidance, Tesla, which dropped 7% amid production delays and safety issues, and Netflix, which slid 5% on competition concerns.
The Fed and the economy also influenced investor sentiment this week, but in opposite directions. On Wednesday, the Fed released the minutes of its March meeting, which showed that most policymakers were optimistic about the economic outlook and expected to keep interest rates near zero until at least 2023. This reassured investors that the Fed would not tighten monetary policy too soon or too fast.
However, on Thursday, Fed Chair Jerome Powell said that the U.S. economy was at an “inflection point” and that there were still risks from the pandemic and uneven recovery. He also said that the Fed would start to taper its bond-buying program “well before” raising interest rates, hinting at a possible change in its policy stance later this year.
Meanwhile, economic data this week was mixed, showing both strength and weakness in different sectors of the economy. On Monday, the ISM manufacturing index fell for the fifth consecutive month in March, indicating a contraction in factory activity amid supply chain disruptions and rising costs. On Tuesday, however, the ISM services index surged to a record high in March, signaling a robust expansion in the service sector driven by consumer demand and reopening.
On Thursday, initial jobless claims rose unexpectedly to 744,000 last week, higher than the consensus forecast of 680,000 and reversing two weeks of declines. This suggested that the labor market recovery was still uneven and fragile. On Friday, however, consumer sentiment improved in early April to its highest level since March 2020, according to a preliminary reading from the University of Michigan. This indicated that consumers were more confident about their current and future economic conditions amid vaccine rollout and stimulus checks.
My takeaway from this week’s market action is that investors are still optimistic about the economic recovery and corporate earnings growth, but they are also cautious about potential headwinds from rising inflation, bond yields and policy uncertainty. The market is likely to remain choppy and rotational in the near term, as different sectors react differently to changing macroeconomic conditions.
Therefore, I think it is important for investors to maintain a balanced and diversified portfolio that can benefit from both growth and value opportunities across various industries and regions. I also think it is prudent for investors to monitor key indicators such as inflation data, consumer spending data and corporate guidance for any signs of improvement or deterioration in the economic outlook.
