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S&P 500 surges 2.5% for the week, helped by soft economic data, jump in tech stocks

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The S&P 500 (SP500) on Friday rose 2.50% for the week to close at 4,515.77 points, posting gains in four out of five sessions. Its accompanying SPDR S&P 500 Trust ETF (NYSEARCA:SPY) advanced 2.55% for the week.

Wall Street’s benchmark index notched its best weekly performance since mid-June, helped by a host of economic data that pointed towards a slowing economy and boosted bets that the Federal Reserve could hold off on further rate hikes.

Technology stocks also contributed to the S&P 500’s (SP500) weekly advance, adding onto their gain from last week. Meanwhile, cryptocurrencies garnered some attention after a move by a U.S. federal court potentially sets up the first ever exchange traded fund for bitcoin (BTC-USD).

On Thursday, the S&P 500 (SP500) closed out August with a loss of around 1.8%, only its second negative month in 2023. After a blistering rally that saw the index soar nearly 20% up till July, concerns over higher rates for longer, an extended sell-off in bonds, a pullback in technology and surprising moves from credit rating agencies weighed on sentiment in August.

Turning to this week, it was crammed with key economic data on the labor market and inflation which will probably be instrumental in shaping the decision of the Fed’s monetary policy committee at its meeting later this month. Many of the indicators pointed towards cooling in the economy, strengthening hopes that it would be enough for the central bank to keep rates steady.

On Tuesday, the Job Openings and Labor Turnover Survey (JOLTS) for July arrived, with job openings falling below the 9M for the first time since March 2021. Wednesday saw ADP’s jobs report, according to which private sector employment increased at a lower-than-expected rate. Thursday’s calendar delivered the latest Challenger report, as per which job cuts increased more than three times in August. Finally, Friday’s nonfarm payrolls report showed an uptick in the unemployment rate.

Market participants took heart from the data, which suggests that the highly resilient labor market is finally cracking and that the effects of the Fed’s aggressive tightening campaign is showing up. Investors are hoping that the reports have been enough to convince the central bank to stop hiking. The only blip was jobless claims numbers, which fell for a third straight week.

“The loosening up of labor market slack in today’s (nonfarm payrolls) report, combined with the friendly JOLTS report from earlier this week, should cement the case for a Fed on hold later this month. The more interesting question will be whether the median dot continues to project one more hike this year. Either way, Fed leadership must be happy with a week that marked up odds for achieving a soft landing,” JPMorgan’s Michael Feroli said.

Data outside of the labor market was also weak: The Conference Board’s gauge of consumer confidence fell in August, after back-to-back increases in June and July; the second estimate of U.S. Q2 GDP growth was revised downward by a greater-than-anticipated margin; and finally, the core personal consumption expenditures price index – the Fed’s preferred inflation gauge – held steady in July on a M/M basis.

Looking at the weekly performance of the S&P 500 (SP500) sectors, nine ended in the green, with Technology posting an outsized gain of nearly 4.5%. Energy and Materials rounded out the top three. Utilities and Consumer Staples were the two losers. See below a breakdown of the performance of the sectors as well as their accompanying SPDR Select Sector ETFs from August 25 close to September 1 close:

#1: Information Technology +4.42%, and the Technology Select Sector SPDR ETF (XLK) +4.44%.

#2: Energy +3.78%, and the Energy Select Sector SPDR ETF (XLE) +3.60%.

#3: Materials +3.57%, and the Materials Select Sector SPDR ETF (XLB) +3.74%.

#4: Communication Services +3.46%, and the Communication Services Select Sector SPDR Fund (XLC) +2.66%.

#5: Consumer Discretionary +3.03%, and the Consumer Discretionary Select Sector SPDR ETF (XLY) +3.04%.

#6: Industrials +2.02%, and the Industrial Select Sector SPDR ETF (XLI) +2.12%.

#7: Financials +2.00%, and the Financial Select Sector SPDR ETF (XLF) +2.06%.

#8: Real Estate +1.44%, and the Real Estate Select Sector SPDR ETF (XLRE) +1.51%.

#9: Health Care +0.05%, and the Health Care Select Sector SPDR ETF (XLV) +0.12%.

#10: Consumer Staples -0.33%, and the Consumer Staples Select Sector SPDR ETF (XLP) -0.39%.

#11: Utilities -1.73%, and the Utilities Select Sector SPDR ETF (XLU) -1.56%.

Below is a chart of the 11 sectors’ YTD performance and how they fared against the S&P 500 (SP500). For investors looking into the future of what’s happening, take a look at the Seeking Alpha Catalyst Watch to see next week’s breakdown of actionable events that stand out.

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