Traders work on the floor of the New York Stock Exchange (NYSE) on February 4, 2022 in New York City.

Spencer Platt | Getty Images

With the Federal Reserve’s first rate hike behind us, market professionals are now debating whether the market can continue the rally that started last week.

A powerful rally in technology and growth stocks helped propel the stock market into the best week of the year. The S&P 500 was up about 6.2% this week, closing at 4,463. The Nasdaq rose 8.2% and the Dow gained 5.5%.

Consumer durables rose more than 9% as the best performing sector, followed by technology, up about 7.8%. Energy was the only major sector to decline, down 3.6%.

Some of the most punished names, such as airlines, were among the biggest winners of the week. Airlines were up about 14.7% this week. The high-growth names also bounced, with the ARK Innovation Fund, a paragon of growth, jumping about 17.4%. The fund is still down more than 46% in the past six months.

Ukraine will remain a focus and headlines may continue to bring volatility into the week ahead. Investors are also watching the course of Covid, which is leading to closures of Chinese cities and spreading again at a faster pace across Europe.

There have been more than a dozen speeches from the Fed, including Fed Chair Jerome Powell who will appear at an economics conference Monday and an international banking conference on Wednesday. The economic calendar is relatively light, with PMI for durable goods and both services and manufacturing.

“The anticipation of the first rate hike has done more damage than the rate hike itself. We got bogged down, starting in December, with the Fed’s pivot from temporary inflation to winding down” [bond purchases]said Art Hogan, chief market strategist at National Securities. “That’s a bit behind us now as a headwind. That lessens the impact a parade of Fed speakers will have.”

Indeed, the market ignored Friday’s aggressive comments from St. Louis Fed President James Bullard and Fed Governor Christopher Waller, which appeared on CNBC. Both said they wanted to raise rates faster than the average of seven rate hikes the Fed expects this year.

The Fed released its rate forecast on Wednesday, as it raised its Fed Funds target range by a quarter point to 0.25% to 0.50%, the first rate hike since 2018. The Fed also said it would begin lowering its near-term rate. $9 trillion balance at an upcoming meeting.

Technology and growth have performed well this past week, and they are the stock groups most affected by higher interest rates. They generally charge higher prices because investors buy them for their future earnings, and easy money makes them very attractive.

Strategists say technology can continue to win in an environment of rising prices, as some of its excesses have been pushed out of the group. But they may not be the leaders they once were.

Looking beyond the Fed

“I think the Fed has paved the way for investors to focus on profits again,” said Julian Emanuel, head of equities, derivatives and quantitative strategy at Evercore ISI. “Basically…earnings estimates have risen since the beginning of the year.”

Emanuel said he expects the market to continue rising in the near term barring an escalation of geopolitical events. While it appears that oil prices have peaked, he said it is still not clear whether stocks have bottomed out for the year.

“The sentiment is absolutely terrible… When you put it all together, we think it’s a recipe for higher stock prices in the next two months,” said Emanuel. He said investors can now ignore the fact that the Fed has started its rate hike cycle.

“We’re there. We know what’s going to happen. We know they’re going to do 0.25% in May. We know they’re going to start QT [quantitative tightening] sometime in the middle of the year,” he said. “They’re not raising interest rates enough to really hurt the market and investors can focus on profits again.” He expects the S&P 500 gains to grow 9.3% this year. will rise.

Hogan said the market is leaning towards a favorable outcome for Ukraine, such as a ceasefire, although there are no developments indicating an end in sight.

“Everyone is leaning in this direction that this will end in weeks rather than months,” he said. “If not, the market will have to recalibrate that.”

This is what the stock charts say

Scott Redler, partner of T3Live.com, focuses on the short-term technicals of the market, saying that after a strong run, the market could absorb some of its gains early in the week.

“After an impressive week like this, most active traders are reducing risk in this [S&P 500] “If we could process a day or two after quadruple witches, that could give us some signals that this could continue towards 4,600.” The quadruple expiration in options and futures was Friday.

Redler said Russia’s war in Ukraine and Fed policy tightening will continue to hang over the market, which could keep the S&P 500 within reach. “I don’t think anyone thinks the market is going back to its all-time high anytime soon,” he said. “I think we’re right in the middle of a run. This is a very neutral place not to short and not add longs. We’ll see how we digest this next week. For me, I think oil is the high in for the year, and that could be helpful.”

The price of oil briefly rose to $130.50 a barrel earlier this month as investors feared sanctions against Russia would curtail oil exports and create large deficits. Since then, oil has fallen, with West Texas Intermediate crude futures trading just below $105 a barrel on Friday.

Redler said a key test for the S&P 500 will be to see if it can hold the top third of its range and stay above 4,330. “If it can hold that, the next step could be higher,” he said. “That would show dedication to this week’s actions.”

Technology stocks made a strong comeback, and Redler said he’s watching to see if they continue to lead. “Tesla has been leading the way all week. Some tech names have broken their downward trend,” he said. “Tesla, NVIDIA and Amazon were up for sale on dips… NVIDIA provided evidence that the rally was just as credible because it was one of the first stocks to cross the downward trendline.”

Apple and Microsoft, both higher on the week, could be key market drivers in the coming week.

“Apple and Microsoft weren’t headwinds, but they weren’t headwinds. If they could outperform a little bit, they could help the broader indices,” Redler said. He said the two stocks, the largest by market cap, were higher during the week, but trailed the Nasdaq’s gains as they had large selling imbalances during the quadruple expiration.

“The stocks with the largest buybacks have the largest selling imbalances,” Redler said.

Week ahead calendar

Monday

Income: Nike, Tencent Music

8:00 a.m. Atlanta Fed President Raphael Bostic

12:00 a.m. Fed Chair Jerome Powell keynote at the NABE Economic Policy Conference

10:00 a.m. QFR

Tuesday

Earnings: BuzzFeed, Adobe, Poshmark

10:30 a.m. New York Fed President John Williams

2:00 p.m. San Francisco Fed President Mary Daly

5:00 p.m. Cleveland Fed President Loretta Mester

Wednesday

Earnings: General Mills, Winnebago, Cintas, Tencent Holdings, KB Home, Steelcase

8:00 a.m. Fed Chair Powell at Bank for International Settlements virtual summit

10:00 am Sale of new houses

11:25 PM San Francisco Fed’s Daly

Thursday

Revenues: Darden Restaurants, FactSet, NIO

8:30 a.m. Minneapolis Fed President Neel Kashkari

8:30 am First claims

8:30 am Durable Goods

8:30 am Current account

9:10 a.m. Fed Governor Christopher Waller

9:45 AM Production PMI

9.45 am Services PMI

9:50 a.m. Chicago Fed President Charles Evans

10:00 am Sale of new houses

11:00 a.m. Boston Fed’s Bostic

Friday

10:00 am New York Fed’s Williams

10:00 Pending home sales

10:00 am Consumer Confidence

11:30 am Richmond Fed President Tom Barkin

12:00 PM Fed Governor Waller


This post Investors come out of a strong week looking for more gains now that they have some clarity from the Fed was original published at “https://www.cnbc.com/2022/03/18/investors-come-off-a-strong-week-looking-for-more-gains-now-that-they-have-some-clarity-from-the-fed.html”

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