Market Direction Week of May 31, 2016

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Last Week Review: Stocks rallied on Tuesday and Wednesday, and the S&P 500 was up 2.3% on the week. Helping stocks jump higher were economic data from the housing sector: new home sales grew at their fastest pace since January 2008 and pending home sales grew 5.1% over the last month. This acceleration in the housing market is evidence that the economy can rebound from soft growth in the first quarter and companies can grow their earnings in the back half of 2016.

This week the Fed rate hike for June and July forecast has increased from 28% to 30% and 48% to 54%, respectively. Most economist favor July as the mostly likely time for a rate hike.

How the market finished last week, the S&P 500 up 2.3%, the Nasdaq up 3.4%, and the Dow up 2.1%.

This Week: A shortened trading week, an almost empty corporate calendar and lighter economic news means markets may struggle for definite direction until the end of the week. The ECB meeting is not expected to be one of the blockbuster ones, with little change on policy expected, while the run of PMIs will be of interest for various currency pairs. Fortunately, non-farm payrolls come in on Friday, which will help alleviate any boredom.

The recent breakout in equities suggests that the post-February rally may not be done just yet, although much hinges on the outlook for Fed policy. Recent strength in the dollar has begun to shift, and if this continues equities, plus oil and other commodities, may find it easier to stage a rally. 

Economic Calendar: Personal Income and Outlay (5/31), ISM Mfg Index (6/1), International Trade (6/3), Employment Report (6/3)

Some of the major earnings announcements on deck: KORS, AMBA, AVGO, FIVE, BDX.

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