Stocks and Bonds Gain on Fed Speech, Weak Jobs Data, and Apple Earnings

The Dow (+1.1%), NASDAQ (+1.4%) and S&P 500 (+0.5%) exhibited modest gains last week.  Similarly, taxable bonds and tax-free municipal bonds gained 1.2% and 0.7%, respectively.  Gains in bonds were boosted by the 10-year Treasury yield falling 0.17% to 4.50%.

The markets were driven last week mostly by factors that influence Fed interest rate hikes or cuts.  On Wednesday, the Fed kept interest rates the same, but “loosened” policy by reducing its balance sheet runoff from $60 billion to $25 billion per month.  Fed Chairman Powell also remarked that further rate hikes are possible, but also unlikely.  Lastly, the April jobs report was weaker than expected and combined with the Fed comments, gave encouragement for investors to buy stocks and bonds. 

Earnings season is also winding down, as 80% of S&P 500 corporations have reported their earnings so far.  Earnings growth has come in at an average of 5%, higher than expected.  As for last week, Apple delivered strong earnings and also announced the largest share buyback in US history, vaulting that stock up 8% for the week.  Given that Apple is the 2nd largest stock and can be found on all three stock indices, that helped drive the market benchmarks higher than the broader market (as represented by the S&P 500 equal weight), which gained only 0.2%.

In short, stock prices are all about their earnings and their earnings projections.  Earnings have been good, but concerns over inflation and the Fed raising interest rates usually cause concern for future earnings expectations.  That is why markets seem to be driven more by speculation of the Fed’s policy, rather than the actual economic data.  Quite frankly, I preferred the days when good economic data was good news, rather than causing markets to decline.

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