Stocks remain on solid footing as Wall Street shrugs off last week’s sell-off as only a ‘flesh wound’
Stocks staged a modest comeback to kick off the week as investors largely shrugged off the worst trading action of the year on Friday when fears over inflation and economic uncertainty dragged down the major indexes.
In mid-afternoon trading, the Dow (^DJI) inched up around 0.5%, while the benchmark S&P 500 (^GSPC) secured gains of around 0.2%. The tech-heavy Nasdaq (^IXIC) fell around 0.2%, burdened by shares of Palantir (PLTR), which declined another 8% on reports of government budget cuts.
“Multiple factors fueled the decline on Thursday to Friday,” Fundstrat head of research Tom Lee wrote in a note to clients on Monday, referencing Walmart’s (WMT) soft guidance as consumer spending fears came into focus, along with the potential economic impact of tariffs and Microsoft’s (MSFT) reported decision to cancel some leases for data center capacity.
“While there are merits to these concerns, we also believe these concerns are likely only ‘flesh wounds’ to the positive for these equities,” Lee said, laying out multiple catalysts in the week ahead.
As of 3:30:40 PM EST. Market Open.
^DJI ^GSPC ^IXIC
According to Lee, Nvidia (NVDA) earnings on Wednesday are “likely a positive” to equities, while Friday’s PCE data “likely affirms inflation tracking lower.”
The odds of an interest rate cut in May have also doubled in recent weeks, “reflecting some concerns about consumer softness, but also is a reminder the Fed ‘put’ is in play.”
Read more: How the Fed rate decision affects your bank accounts, loans, credit cards, and investments
“Bottom line: Investors are ‘buying the dip’ as 2025 is tracking better than expected,” Lee said, noting a cash pile of $7 trillion on the sidelines.
Stocks have drifted higher since the start of the year, with the S&P 500 hitting two record highs last week alone. Notably, the index has logged 35 sessions without posting consecutive declines of more than 1%, according to data compiled by Bloomberg, the longest such streak since late December and a phenomenon that’s only occurred three times in the past year.
“Since November, everyone’s really piled into the market,” Michael O’Rourke, chief market strategist at JonesTrading, told Yahoo Finance in an interview on Monday. “Everyone’s been very bullish, very optimistic, [but] we have a long way to go for all these optimistic Trump policies to come into shape.”
To that point, it’s possible policy uncertainties could create some market volatility in the months ahead as traders attempt to appropriately price in the risk.
