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Energy and Financial Sectors Shake Off Last Week’s Decline, Lead S&P to New High

Weekly Update – June 25, 2021

  • The S&P 500 index rose 2.7% this week to a new closing high as the energy and financial sectors led a broad advance that more than wiped out last week’s 1.9% tumble.
  • The market benchmark ended Friday’s session at 4,280.70, up from last Friday’s closing level of 4,166.45 and marking a record closing high. The index also reached a fresh intraday high Friday at 4,286.12.
  • The S&P 500 had been down 0.9% for the month of June as of last week’s close, but this week’s climb sent the index back into the black for the month; it is now up 1.8% for June to date, with just three sessions remaining in the month. It is also up 14% for the year to date.
  • The rally came as investors grew more comfortable with the Federal Reserve’s warnings last week that it may raise rates by late 2023, which is sooner than previously anticipated. The market was encouraged to see President Joe Biden and a group of senators agreed on a $1 trillion infrastructure plan. The agreement calls for new investments in the electrical grid, transit, roads and bridges and other forms of infrastructure.
  • Every sector got swept up in the weekly advance. The energy sector had the largest percentage gain of the week, up 6.7%, followed by financials, up 5.3%, and industrials, up 3%. The weakest sector was utilities, which still edged up 0.7%.
  • The energy sector’s jump came as crude oil futures rose amid a report showing US oil inventories fell by 7.6 million barrels last week to their lowest level since March 2020, while gasoline inventories also dropped. The larger-than-expected drop also marks the fifth consecutive decline and was seen as an indication that demand is continuing to improve from pandemic lows, including a near-doubling of aviation fuel demand from a year earlier.
  • Among the sector’s gainers, shares of Occidental Petroleum (OXY) jumped 18% this week. The stock has been the recipient of a number of positive analyst actions recently, including a price target boost from BMO Capital this week and an investment rating upgrade from Morgan Stanley last Friday. Morgan Stanley, which now has an overweight rating on the stock, up from equal-weight, said it now sees the oil producer as having a “more compelling risk-reward against a backdrop of sustained higher oil prices.”
  • The financial sector was boosted by a report from the Federal Reserve Board saying all 23 large banks remained “well above” risk-based minimum capital requirements in its annual stress test results. As a result, additional restrictions put in place during the COVID-19 pandemic will come to an end, the Fed said late Thursday. Gainers included Wells Fargo (WFC), whose shares rose 11% on the week, and Citigroup (C), up 5.8%.
  • Among the stocks keeping a lid on the utilities sector’s gains, shares of Evergy (EVRG) fell 1.4% this week as Wells Fargo downgraded its investment rating on the power supplier’s stock to equal-weight from overweight.
  • Next week, the biggest focus of the week among economic data will be the June nonfarm payrolls and unemployment rate due Friday from the Labor Department. Investors will also be parsing the ADP employment report on the private sector on Wednesday and the Labor Department’s weekly jobless claims on Thursday for indications of what to expect Friday. Other data set to be released next week include June consumer confidence on Tuesday, May pending home sales on Wednesday and May construction spending on Thursday.
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