Volatile Week on Wall Street Wraps Up as Fed Hikes Interest Rates

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The Dow is on track for its sixth-straight weekly loss

Headlines during the first week of May were dominated by the U.S. Federal Reserve’s interest rate decision on Wednesday, and the volatility leading up to the move resulted in mixed midday trading for the Dow Jones Industrial Average (DJI), S&P 500 Index (SPX), and Nasdaq Composite (IXIC) on Monday. However, the major benchmarks all managed to rally in the final minutes of trading and finish with substantial wins, even after the 10-year Treasury yield hit three-year highs. The rally carried over into Tuesday’s session, though Wall Street’s win was more muted as investors held their breath for an anticipated interest rate hike.

By Wednesday afternoon, attention temporarily turned towards a disappointing ADP private payroll report and a tumble in Big Tech. In the latter half of the session, the Fed followed through with the hike of 50 basis points, but stocks managed to nab a third-straight win after Fed Chair Jerome Powell assured there would not be a more substantial 75-basis-point hike to come. The optimism couldn’t last, however, and the Dow finished Thursday more than 1,000 points lower, scoring its worst day since June 2020 along with the Nasdaq, after the 10-year Treasury yield surged back above 3% and disappointing labor productivity rolled in. By midday on Friday, disappointing earnings reports and the elevated Treasury yield have the Dow on track to log its sixth-straight weekly loss, while the S&P 500 and Nasdaq head for their fifth-straight.

The Best and Worst Stocks to Own in May

Every month, Schaeffer’s Senior Quantitative Analyst Rocky White compiles a list of the best and worst stocks to own, with data looking back 10 years. For May, history says Walgreens Boots Alliance (WBA) is the Dow component investors should avoid. Conversely, the best performing blue chip is UnitedHealth Group (UNH), which also just pulled back to a historically bullish trendline. Additionally, CME Group (CME) saw its shares pullback to a similarly bullish moving average, and landed on White’s list as the third-best stock to own this month. Investors should also expect bearish returns from Marriot International (MAR), while Cintas (CTAS) could prove a good portfolio booster.

The Week’s Biggest Earnings Disappointments

After a sunny start to earnings season, recent reports did their best to dent sentiment on Wall Street. Despite upbeat earnings and revenue, Expedia (EXPE) nabbed a host of bear notes and fell nearly 10% following its latest report. Similarly, eBay’s (EBAY) highly anticipated report came with better-than-expected results, but a lackluster forecast saw analysts chime in with a barrage of price-target cuts. And while Starbucks (SBUX) was also victim to a round of lower price objective adjustments, the equity was luckily able to shake off the bearish sentiment and rise after earnings. Meanwhile, Biogen’s (BIIB) CEO stepped down after dismal earnings per share, Etsy (ETSY) was on track for its worst day in two years after its financial results, and Uber (UBER) lost $5.9 billion following a number of equity investments.

What’s to Look for Next

Wall Street will tune into inflation data next week. And though earnings seasoning is beginning to cool down, reports from Alibaba (BABA), AMC Entertainment (AMC), Palantir Technologies (PLTR), Walt Disney (DIS), Yeti (YETI), and more, are still due out. In the meantime, traders might want to keep an eye on the SPX’s next rally could mean going forward. For even more insight, check out our most recent Indicator of the Week, in which Schaeffer’s Senior Quantitative Analyst Rocky White analyzes how the broader-market index tends to trade in May.

Originally published at https://www.schaeffersresearch.com on May 6, 2022.