John Hancock: Weekly Market Recap Week Ended May 15

Rate hike ahead?

Recent bond market trading supports expectations of a potential rate hike by year end, marking a reversal from earlier expectations of rate cuts. Friday’s trading in rate futures markets implied a roughly 50% probability that the Fed would lift its benchmark rate by either a quarter-point or a half-point by December, according to CME FedWatch. The probability of rates remaining unchanged was nearly 49%, with less than a 1% probability of a cut.

Top & bottom lines

The nearly completed earnings season has been strong on a revenue basis, not just in terms of profits. As of Friday, companies in the S&P 500 were on pace to record first-quarter revenue growth of 11.4%, the highest rate since the second quarter of 2022, according to FactSet. As for profits, companies were on track Friday for an earnings growth rate of 27.7%, the strongest since 2021’s fourth quarter.

Style reversal

A U.S. large-cap growth index outperformed its value style counterpart for the sixth week out of the past seven, marking a shift from the value style’s run of outperformance earlier this year. At the market capitalization level, small-cap stocks lagged in the latest week, with a small-cap benchmark falling 2.3%.

Fed chair transition

The Senate on Wednesday approved the nomination of Kevin Warsh as chair of the U.S. Federal Reserve. He replaces Jerome Powell, who led the Fed for eight years. Warsh’s first meeting as chair is set for June 16-17, with Powell retaining a seat as a Fed governor for now.

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