The S&P 500 closed the week with a small gain of about 33 points or less than 1%. The Dow Jones also gained while the Nasdaq lost ground and the Russell 2000 fund (IWM) lagged with a loss of 1%.
It sounds like pretty mild action, but it was the most volatile trading since the Covid pandemic meltdown in early 2020. There was a huge drop on Monday and a giant reversal, and then another sharp drop on Wednesday when Fed Chair Jerome Powell surprised the market by being more hawkish than anticipated. The big news this week was that the market is now expecting an additional two interest rate hikes that it didn't foresee a week ago.
The mood has been very negative, but it improved nicely on Friday following a much better-than-expected earnings report from Apple (AAPL) and also some chatter that the Fed may not hike rates as quickly as feared.
The sell algorithms that have been hitting the market so hard all week reversed course late in the day and delivered a very strong finish that took some of the sting out of a hard week. This was one of the most difficult trading weeks that many traders have had to deal with, and they breathed a little sigh of relief with the strong finish.
So now what? We have a slew of earnings reports next week, including a number of big names like Amazon (AMZN) and Meta (FB) .
The primary issue for traders will be whether or not the market has discounted a more hawkish Fed. This is one of the most consequential shifts in monetary policy in decades, so it isn't something that is likely to be quickly overcome. There will be reverberations, but one of the positives is that Powell was extremely negative, and now there is a chance for some moderation in his views as things progress.
There are a huge number of stocks that are badly broken and at new lows. The IWM crossed the bear market threshold, and a huge percentage of stocks in the Nasdaq are down more than 50%. There is still a huge disparity between the S&P 500 and the average stock.
It is going to continue to be a rocky ride, but the correction process has advanced, and there are some fantastic opportunities developing.
Have a great weekend. I'll see you on Monday.
(Apple and Amazon are holdings in the Action Alerts PLUS member club. Want to be alerted before AAP buys or sells these names? Learn more now.)