Market Insights

Stocks are back above a key level, but will they stay there?

The S&P 500 rose 3 percent in the holiday-shortened week between May 22 and May 29. The index also finished its second straight positive month and closed above the psychologically important 3,000 level.

Optimism about lockdowns ending, a coronavirus vaccine and central-bank stimulus have lifted stocks 39 percent from their March lows. But now investors may start to worry about potential risks as bearish economic news approaches. Earnings season, often a positive for sentiment, has also passed.

This week brings a triple dose of important data:

• Today: The Institute for Supply Management’s manufacturing index is expected to show factory activity still firmly in the red.
• Wednesday: ADP’s private-sector payrolls report is due. Consensus estimates are looking for another 8.7 million jobs lost in May.
• Friday: The government’s monthly unemployment rate is expected to approach 20 percent.

Housing Leads the Rebound

Housing stocks were the best-performing major industry group in May. Mortgage applications and home sales have shown business recovering quickly from the coronavirus pandemic. The sector also enjoys pent-up demand after years of under-building. Record-low interest rates don’t hurt either.

Silver also had its biggest monthly gain since 2011. The white metal remains historically cheap versus gold, which has gotten a safe-haven boost from the economic slowdown. Options traders may want to keep an eye on the growing activity in iShares Silver Trust (SLV).

The SPDR S&P Biotechnology ETF (XBI) was another outperformer last month as investors favored companies that can grow in a weak economy. Did you know XBI is now above its previous all-time high from 2018, while the broader market is still down 10 percent? Momentum followers may like that kind of relative strength.

Financials and airlines lagged in May. Energy stocks also struggled, despite crude oil having one of its best months ever. Black gold may be at a crossroads with production nosediving as consumption rebounds.

Volatility and Bitcoin

Last week saw the Cboe volatility index ($VIX.X) close at its lowest level since the start of the coronavirus crash on February 24. That may create the potential for options traders to position for higher volatility if the S&P 500 declines.

Bitcoin (BTCUSD) has squeezed into a tight range after its coronavirus crash. The cryptocurrency had its third-ever “halving” last month, resulting in less new supply. Meanwhile new investors seem to be entering the market. Other cryptos including Ethereum (ETHUSD) and Litecoin (LTCUSD) have also started moving since Memorial Day.

There are two other important data points this week. Oil inventories on Wednesday morning will show how quickly the energy market is rebalancing. Jobless claims on Thursday will show the most recent state of the labor market.

Noteworthy earnings include Zoom Video Communications (ZM) tomorrow afternoon and Slack (WORK) after the closing bell on Thursday. Don’t forget there’s a Federal Reserve meeting next week.