Week of May 16, 2022

The volatility picked up again last week, capped with a powerful rally on Friday.  The Dow rose 466.36 points, or 1.47%, while the S&P 500 gained 2.39%.  The tech-heavy NASDAQ jumped 3.82% and posted its strongest one-day gain since November 2020.  Still, all three averages posted losses for the week.

“The question remains as to whether this rally signifies the end of the selling,” LPL Financial Chief Equity Strategist Quincy Krosby said in a note, adding analysts will be watching 200-day moving averages and whether resistance levels are pierced.  “Moreover, although price action is key, volume to the upside would suggest buyer interests at these levels.”

“Given the history of bear markets, coupled with the fact that the Fed has just begun its rate hike cycle and would like to see financial conditions continue to tighten so that demand pulls back further, this rally will most likely weaken, Krosby added.

The S&P 500 sits 16% off its record high, while the NASDAQ Composite is down more than 27% as investors hit growth stocks trading with lofty valuations the hardest as interest rates spiked.

The Producer Price Index (PPI) released last Thursday showed 11% year-over-year rise in wholesale prices last month, with the rate leveling only marginally from March’s all-time high rate of 11.5%, while Wednesday’s Consumer Price Index (CPI) reflected another red-hot reading of 8.3% tear-over-year.

In the week ahead, plenty of market prognosticators will talk about capitulation.  That’s the point when fear wins, and investors sell en masse with no regard to the financial prospects of a stock or bond.  The difficulty is that capitulation is easiest to recognize after it’s happened.