Market Awaits Fed Decision

U.S equity markets had another week of low volatility in the first week of June. The S&P 500 and the technology-heavy Nasdaq Composite Index hit record intraday highs last week, while small-cap indexes faced declines. The S&P 500 rose by 1.36% for the week, and the Nasdaq gained 2.4%. In contrast, the Russell 2000 Value Index dropped by 2.54%.

Economic Indicators

Last Monday, the Institute for Supply Management (ISM) reported its manufacturing activity gauge fell further into contraction territory, registering at 48.7—below the 50-mark that indicates contraction. Conversely, the ISM’s services index jumped to 53.8 in May, its highest level in nine months, surpassing consensus expectations. This trend of shifting from a manufacturing-based economy to a service-focused economy has been ongoing since the post-pandemic period.

Employment Report

The May employment report revealed minimal changes from the previous month. Total nonfarm payroll employment increased by 272,000 in May, exceeding analysts’ expectations. However, the unemployment rate rose to 4%, up from 3.7% a year ago, marking the highest level since January 2022. Employment gains were noted in several sectors, including healthcare, government, and leisure and hospitality, while industries such as mining, construction, manufacturing, financial activities, and other services saw little or no change.

Nvidia

Despite the Justice Department’s antitrust investigations into Nvidia’s dominance in the AI semiconductor market, Nvidia’s stock continued to rally following a 10-for-1 stock split. Year-to-date, the S&P 500 has gained 9.57%, with Nvidia contributing 51% of this increase. After realizing an annualized growth rate of 50% in the past five years, this AI driven company is expected to still grow at double digits in the following quarters.

Looking Ahead

As the week unfolds, market participants will focus on the inflation report on Wednesday morning and The Federal Open Market Committee (FOMC) meeting on Wednesday afternoon. The options market is currently forecasting a potential movement of more than 1% either upwards or downwards on Wednesday. While it’s widely agreed that policymakers will maintain the current rate at the June meeting, any indication regarding future policy will be the key to near term market movement.

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