The stock market saw a relatively flat end to the week, with the S&P 500 barely moving on Friday. Despite the lackluster performance on the day, the index managed to secure its most significant weekly gain of the year so far, thanks to the Federal Reserve’s decision to stick with projections of three interest rate cuts by the end of 2024.
While the Nasdaq ended slightly higher on Friday, driven by the semiconductor index’s strong performance, the Dow closed in the red. Consumer discretionary shares took a hit, with notable companies like Nike and Lululemon Athletica seeing significant declines in their stock prices. Nike warned of a revenue shrinkage in the first half of fiscal 2025, causing its shares to drop by 6.9%. On the other hand, Lululemon Athletica forecasted below-expectation revenues and profits, leading to a 15.8% decline in its stock price.
The Federal Reserve’s decision to maintain interest rates but signal a plan for three rate cuts this year had a positive impact on market sentiment. Investors interpreted the Fed’s stance as a shift from being an adversary to a potential ally, paving the way for increased optimism in the market. Traders now anticipate a 71% chance of the first rate cut happening in June, up from 56% earlier in the week, according to the CME’s FedWatch Tool.
Despite the recent gains in the market, analysts like Michael Sheldon from RDM Financial Group at Hightower in Westport, Connecticut, warn of a possible pullback, correction, or sideways trading period. The significant increase in stock prices since October could lead to a period of consolidation or a downward trend in the near future. It’s essential for investors to remain cautious and not be overly swayed by recent market performance.
Among the individual stock movements, FedEx stood out as a gainer, jumping 7.4% after beating Wall Street expectations for quarterly profit. On the flip side, Digital World Acquisition saw a 13.7% decline after shareholders approved its merger with former U.S. President Donald Trump’s media and technology company. These specific company developments highlight the impact of corporate news on stock prices and investor sentiment.
The trading volume on U.S. exchanges was lower than the 20-day average, with 9.45 billion shares exchanged compared to the normal 12.34 billion. This discrepancy in trading volume indicates that investors may be adopting a more cautious approach, possibly in response to the uncertainty surrounding future interest rate cuts and economic stability.
While the stock market experienced a positive week with significant gains, investors should exercise caution moving forward. The potential for market corrections, uncertainties around interest rate cuts, and individual company performances all contribute to the complexity of investing in the current economic environment. It is crucial for investors to conduct thorough research, diversify their portfolios, and stay informed about market trends to make well-informed investment decisions.