The S&P 500 fell by around 2.5% this week, mainly due to the strong market sell-off on Friday. The combination of inflationary pressures and an uptick in new jobs led many investors to worry about rate hikes in the coming quarters. Tech stocks were hit the hardest, while there were several positive market movers this week.
Here are some of the recent major economic developments, as well as the top market movers this week.
1. Tech Stocks Sell Off
Friday was a challenging day for the market, as the S&P 500 fell by nearly 3% during the trading day. The market is strongly concerned about potential rate hikes following the new labor market data, which resulted in strong selling pressure for technology stocks.
The Nasdaq, which has an even heavier tech weighting, fell by 4% on Friday.1 The Vanguard Information Technology ETF (VGT) fell by over 6% on Friday, erasing some of its stellar YTD gains. Major tech themes like quantum computing also sold off strongly on Friday, with many industry leaders falling by over 11%.2
Tech stocks have been the main driver of recent market performance, but may be very vulnerable to short-term pullbacks amid new economic risks in the market.
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2. New Jobs Report Increases Rate Hike Risks
Markets responded poorly to the newly released Jobs report, which showed that the labor market is much stronger than expected. This new data, coupled with rising inflation in recent months, signals that the Federal Reserve may have to hike interest rates.
The US economy created over 150,000 jobs in May, while the unemployment rate remained steady at 4.3%.3
3. New Inflation Concerns
One of the main events in markets next week will be the release of new inflation data on June 10th. Oil prices remained above $90/barrel for most of May, and other indicators like services inflation have also been rising near a twelve-month high.4
Friday’s exaggerated sell-off shows that the market is currently very sensitive to any news surrounding potential rate hikes, so markets could sell off strongly again due to any poor inflation readings.
Sentiment is mixed, but many economists are calling for higher inflation, especially if tensions in the Middle East continue. According to the Survey of Professional Forecasters, inflation may hit 6% this quarter.5 Investors should keep an eye on the upcoming CPI data this week. Hotter inflation could cause further market corrections if higher readings further exacerbate fears of a potential rate hike.
4. Top Performing Sectors
While themes like information technology and consumer discretionary stocks were slammed on Friday, some themes managed to hold their ground amid the broader market sell-off.
Some of the best-performing sectors on Friday included consumer staples, utilities, real estate, healthcare, and financials stocks.6 This trend highlights how themes with higher valuations, like consumer discretionary and IT stocks, were more sensitive amid the new fear of rate hikes.
Other alternative investments, like bitcoin, also experienced a strong sell-off on Friday. The price of bitcoin fell by nearly 20% during the trading week, its largest weekly decline since the collapse of FTX in late 2022.7
5. Gold’s Rising Relevance
Gold has been one of the best-performing commodities in recent quarters. One of the main developments supporting gold has been increased buying from Central Banks.
Gold recently surpassed treasuries to become the top global reserve asset, according to an ECB report.8 This is very positive news for gold, which has become a strong safe haven for Central Banks, institutional investors, and retail investors alike.
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