Stocks Rose Again Last Week, But The Current Market Cycle Appears To Be Topping Out

Summary:

• The S&P 500 rose by 1.1% last week, up 32 points to 2940.
• Stronger than expected economic growth propelled stocks higher, which makes the Federal Reserve’s path forward unclear.
• Our projection this week is for a small decline in the stock market, followed by a pop to the upside.

The stock market posted modest gains last week, as investors' focus moved from geopolitics to earnings and ultimately pushed stock indexes to new all time highs.

The majority of companies continue to beat earnings and sales expectations, however it is notable that they are beating estimates that have been consistently lowered. Just this quarter, 32 companies in the S&P 500 have guided earnings lower, compared to only six which raised guidance, according to FactSet.

On Wednesday, chipmaker Xilinx, Inc. (NASDAQ: XLNX) beat expectations for both earnings and revenue, but perhaps not by as much as Wall Street had hoped for — the stock fell by 17%. In fact, this appears to have had broader implications as the semiconductor sector, which down by 3% from that point.

The big economic news was on Friday when the economy's first quarter growth rate exceeded expectations, posting 3.2% annualized growth compared to and estimated 2.0%. This was due in part to higher-than-expected government spending at the state and local levels. In any case, the news pushed stocks higher by 0.5%, even as the 10 year notes were also higher.

The stronger growth creates a quandary for the Federal Reserve, which recently paused its pattern of increasing interest rates on expectations of slower growth. The central bank will meet this week to discuss its economic outlook.

S&P 500 (SPX) Daily Chart