NASDAQ 100, Dow Jones, S&P 500: Stocks Stagnate as Traders Weigh Rally Impact, Fed’s Inflation Stance

Highlights

• Minimal movement in US stocks despite recent rally.
• Oil prices rise as Saudi Arabia announces output cut.
• Concerns persist over Fed’s inflation target and market breadth.

Overview

U.S. stocks experienced minimal movement on Monday as traders took in a broad-based rally that propelled the S&P 500 to its strongest week since March and its highest level since August. The market was also influenced by a 2% climb in oil prices following Saudi Arabia’s announcement of an additional 1 million barrels per day output cut starting in July. This decision was made during a meeting of OPEC and its allies, where they opted to stick to existing 2023 production targets.

On Friday, stocks rallied to close the week on a positive note after robust job data for May. The Dow soared 2.1%, marking its best day since January. The S&P 500 rose 1.45%, while the Nasdaq Composite posted its sixth consecutive weekly advance, climbing 1.1%.

Uncertainties Surrounding Fed’s Inflation Target

However, uncertainties surrounding the Federal Reserve’s target for inflation reduction continue to be a major concern. The Allianz chief economic adviser emphasized that the market’s future trajectory hinges on whether the Fed adheres to its 2% inflation target or considers it incorrect. Deviating from the 2% target may result in significant headwinds for the economy, while acknowledging it as the wrong target would suggest that the market is reasonably priced.

Apple, Palo Alto Networks: Market Movers Ahead of Key Events

Prior to the market opening, Apple and Palo Alto Networks were among the top movers. Apple’s shares rose approximately 1% ahead of the Worldwide Developers Conference, where the tech giant is expected to unveil a virtual reality headset called “Reality Pro.” Palo Alto Networks, a cybersecurity company, saw its stock surge by 4.5% after it was announced that it would replace Dish Network in the S&P 500 on June 20.

Investor Concerns Grow Over Narrow Stock Market Rally

Investors worry about the narrow stock market rally in 2023. It relies heavily on a few tech stocks. If this trend continues without market breadth improvement, there could be an intermediate-term correction. Wolfe Research noted strong performance in tech, consumer discretionary, and communication services, but other sectors haven’t fully joined the rally.

UBS Warns of Vulnerable Market Despite Recent Rally

UBS provides an unfavorable near-term outlook despite the recent rally in equity markets and the resolution of a potential debt default. The U.S. equity market rally faces vulnerability due to its narrowness and elevated valuations. However, some investors hope for a pause in the Federal Reserve’s actions later this month, buoyed by the strength of the U.S. labor market and persistently high inflation.

US Stocks Steady as Traders Monitor Fed and Rally Impact

U.S. stocks had minimal movement on Monday. Traders evaluated the recent rally and monitored the Fed’s inflation approach. Oil prices rose, and strong jobs data boosted sentiment. However, concerns persist about market breadth and rally sustainability in different sectors. UBS sees an unfavorable near-term outlook, despite market developments fueling hopes for a Fed pause.