As stocks surged during Friday trading – an optimistic ending to a dismal week – many believe that the US economy may just be on the mend. However, experts have advised caution despite Friday’s rally as several indicators show that the economic crisis is far from over.
While the Dow went up by 547 points during Friday trading, its largest single-day gain since the beginning of the year, and the S&P 500 was up by 1.8%, both indices were still down at the end of the trading week. The tech-centric Nasdaq, on the other hand, made slight gains with a meager 2.3% increase.
Wall Street titans also experienced a number of steep sell-offs as May rolled in, mostly due to the fall of the First Republic Bank and the subsequent purchase of its assets by JPMorgan & Chase. Likewise, fears regarding the overall stability of the US banking sector made many investors err on the side of caution as rumors flew about how several regional banks are contemplating options to prevent collapse.
Several investors say that market movement on Friday was little more than a short-term reversal as opposed to an indicator of lasting recovery. Indeed, many traders and analysts remain wary given the current state of the US banking scene, the continued threat of economic recession, as well as the trajectory of the Federal Reserve’s interest rate hikes.
For the trading week that ended on Friday, May 5th, several sectors posed significant gains in comparison to the broader-based indices.
On the S&P 500 boards, the health, utilities, and information technology sectors posted significant gains – but this is seen as a sign that investors are taking up a defensive position against any turbulence looming on the horizon.
For one thing, health and utility stocks perform quite well during recessions. Historically, consumers choose to make healthcare and utilities like power and water their priority expenditures during times when money gets tight.
The fact that information technology gained this week comes as a surprise, however. IT is not usually seen as a defensive sector, but tech stocks – particularly mega-cap stocks like those issued by tech giants like Apple – are seen by investors as safe bets in a potentially turbulent year.
Meanwhile, the price of crude oil dropped for the third consecutive week, possibly due to concerns regarding the state of the banking sector. The Fed’s latest rate hike has also bolstered fears regarding a recession.