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Market Movers Weekly May 13/24: Dow on a Roll as Stock Streak Climbs Despite Consumer Confidence Tumbling


Dow on a Roll

So, the stock market had a pretty solid week, with the Dow Jones Industrial Average keeping its winning streak alive for the eighth time in a row. It was like the DJIA was on a roll, wrapping up its best week since way back in December with a nice little 0.3% climb. Meanwhile, the S&P 500 was also feeling the vibes, getting closer and closer to its all-time high, nudging up by 0.2% to settle above 5,220 points. But hey, it wasn't all smooth sailing because the Nasdaq Composite decided to take a breather, closing just a tad under the flatline.


Now, onto the not-so-sunny side of things. Turns out, folks aren't feeling as optimistic as they used to. According to the latest consumer sentiment survey from the University of Michigan, there was a pretty big drop in how people are feeling about the economy. Like, we're talking a 13% nosedive in consumer sentiment for May, with the sentiment index hitting a six-month low at 67.4. That's way below what everyone was expecting at 76.2. And why the gloom? Well, it seems like folks are getting jittery about potential interest rate cuts, especially with signs of the job market cooling off.


But hey, not all doom and gloom! The Federal Reserve folks chimed in, saying they're planning to keep interest rates steady for the foreseeable future. And in the world of big corporations, Taiwan Semiconductor Manufacturing Co. had some pretty sweet news to share. They saw a big bump in sales, thanks to folks gobbling up AI stuff and getting hyped about smartphones again. So, yeah, there were some bumps in the road, but overall, it was a decent week in the wild world of stocks.


Forward-Looking Outlook


As we gear up for the week ahead, there's a lot on the horizon that could steer the market in different directions. So, what's on everyone's radar? Well, for starters, all eyes will be on the Federal Reserve, eagerly awaiting any hints about their plans for interest rates. But that's not all – we've got some key economic reports lined up, like the highly anticipated consumer price index, which could give us some insights into where inflation is headed and how the Fed might react. Plus, with corporate earnings season in full swing, brace yourself for some major announcements from big-name companies that could send shockwaves through the market. Strap in, folks, because it's bound to be a rollercoaster ride of market volatility as we try to make sense of it all. And hey, I did a quick check online to see if there's any breaking news we need to add, but it looks like we're all caught up for now. So, let's dive into the excitement of what the week ahead holds!


Morgan Stanley Highlights EHang's Potential in the Urban Air Mobility Market


Morgan Stanley has just kicked off coverage on EHang with a pretty enthusiastic thumbs-up, painting a picture of a company ready to zoom into the urban air mobility market. They're betting big on EHang's electric vertical take-off and landing (eVTOL) aircraft, highlighting the company as a prime mover ready to take advantage of China's growing interest in low-altitude aviation. Cindy Huang, the analyst behind the excitement, is pitching a price target of $27.50 per share, which would be a hefty 58% jump from its recent closing price​.


What's especially buzzworthy is EHang's recent green light from the Civil Aviation Administration of China, a game changer that allows them to boost mass production of their EH216-S pilotless aircraft. This certification is a massive nod to their potential, especially as China's "low altitude economy" starts to take off, with eyes on boosting aerial sightseeing and other tourism-related activities. It's not just about the cool tech but the real impact on the market, with Morgan Stanley noting that EHang is uniquely positioned to capitalize on this emerging sector​.



Dow on a Roll (2)


JPMorgan Advises Defensive Strategy Amid Wall Street's Challenging Period


JPMorgan has suggested a shift towards defensive investing as Wall Street navigates a particularly challenging phase. According to strategist Mislav Matejka, the stock market is entering a seasonally weak period, compounded by enduring high inflation and pressure on profit margins. Recent performance has seen a downturn, with the Dow Jones Industrial Average down 2%, and the S&P 500 and Nasdaq Composite decreasing by 1% and 0.2% this quarter, respectively.


In response, Matejka recommends investing in traditionally defensive sectors such as utilities and consumer staples, noting their recent outperformance. The Utilities Select Sector SPDR Fund (XLU), for instance, has risen by 4.7% this quarter, topping the S&P 500 sectors, with companies like NRG Energy and NextEra Energy seeing significant gains of 20% and 12%, respectively. Only the communication services and staples sectors have also shown positive growth this quarter. Matejka emphasizes that this defensive shift is advisable regardless of future bond yield movements and sees potential in the commodity sectors, particularly energy and mining, to perform well under these conditions.


Sam Stovall of CFRA is currently one of the most bullish analysts on Wall Street regarding the S&P 500's performance. He's upped his year-end target for the index to 5,415 from 4,940, forecasting a 4% rise by year-end and a total annual gain of 13.5%. This optimism is largely fueled by a strong earnings season and signs of easing inflation. With the S&P 500 already seeing a significant uptick of over 9% this year, mainly driven by major tech stocks, Stovall's confidence is bolstered by indications from the Federal Reserve that interest rate hikes may not be imminent.



CFRA's Sam Stovall Projects Significant Gains for S&P 500


Stovall also projects that within the next 12 months, the S&P 500 could climb even higher to 5,610, marking a 7.6% increase from current levels, which would continue the bull market trend. This prediction places him just behind John Stoltzfus of Oppenheimer, who has set the highest target on Wall Street at 5,500.


His positive outlook is supported by historical trends where years following a 20% gain in the market often see continued growth, albeit at a more moderate pace. With the current economic indicators suggesting a possible soft landing rather than a recession, and potential rate cuts on the horizon, the environment appears favorable for sustained growth in the equity market​ 



Global Central Banks May Influence Fed's Rate Decisions

The U.S. Federal Reserve is navigating a unique period where its rate decisions may increasingly align with the broader trends set by global central banks, marking a shift from its usual independent stance. As of mid-2024, the Fed has maintained its rates steady since July 2023. However, other central banks globally, like Sweden's Riksbank and the Swiss National Bank, have started to cut rates, a move that could influence the Fed if the U.S. dollar strengthens significantly due to these global rate disparities​.


This trend of rate cuts is seen across multiple central banks due to easing inflation, suggesting a more synchronized global monetary easing might be underway. As these international rate adjustments occur, they might compel the Fed to consider its position, especially if economic indicators like U.S. inflation or economic activity show declines. Such changes could align the Fed's actions more closely with the global trend towards lower rates​​


In 2024, the anticipation of central banks, including the Fed, is to shift towards cutting rates, reflecting a strategic response to moderated economic growth and the financial pressures of a high-interest-rate environment previously escalated by various global crises​​. This global monetary policy alignment might influence the Fed's future decisions, potentially leading to rate cuts if these trends persist and the differential between U.S. rates and those of other major economies widens.


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