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The Markets This Week

May 31, 2016 | Weekly Commentary

Buoyed by strong economic data, stocks rose more than 2% on the week, but investors had to wait until late Friday to be sure they’d have a relaxing long weekend.

A perfectly boring week was at risk of becoming exciting on Friday when Federal Reserve Chair Janet Yellen sat down with a Harvard professor for a cozy, low-stress “conversation.” Nothing involving the Fed is low-stress these days, given that Wall Street is increasingly torn over whether it will raise interest rates at its June 14-15 meeting. Traders listened closely, letting their Lexuses idle in the garage before racing to the Hamptons.

They needn’t have waited. Yellen only said that a rate hike will probably be appropriate “in the coming months.”

Few investors hung around once they heard that; Friday’s trading volume was the lowest since March. The Dow Jones Industrial Average rose 372 points on the week, or 2.1%, to 17,873.22. The Standard & Poor’s 500 index rose 47 points to 2099.06. The Nasdaq Composite rose 164 points, or 3.4%, to 4933.50.

Oil prices rose on the week, with crude futures briefly jumping above $50 for the first time in seven months before ending the week at $49.33.

Durable goods orders also jumped 3.4% in April, the Commerce Department said, and the Atlanta Fed revised second-quarter GDP growth expectations to 2.9% from its prior estimate of 2.5%. Better economic data raise the chances of a June Fed hike—still considered unlikely—but also boosts the chance that the economy would grow despite it.

Investors remain lukewarm on stocks, which still trade at above-average valuations despite weak quarterly earnings. The American Association of Individual Investors sentiment survey indicated that only 17.8% of investors are bullish, the lowest level since 2005. That’s not to say they’re bearish either. It’s more like they’re aggressively neutral, like a man wearing beige Gap khakis and driving a Volvo. The number of investors who said they were neutral rose 6.3 percentage points last week to 52.9%, the highest level since 2003.

That could actually be good news. “Bull markets tend to die with at least some degree of optimism, but what we are seeing today is apathy,” writes Keith Lerner, chief market strategist at SunTrust, adding that “markets are unlikely to have a major decline with so many investors already positioned for one.”

(Source: Barrons Online)

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