U.S. stocks started the week on a high note on hopes that there would be no interest rate hike in June and that the Federal Reserve would remain accommodative for the time being.
As a result, the S&P 500 rose to a 10-month high, less than 1 percent away from an all-time high. The Nasdaq approached 5,000 for the first time in 2016, and the Dow Jones industrial average traded over 18,000.
Crude oil surged more than 90 percent to over $51 a barrel from its 12-month low in February because of steady declines in U.S. production, increased demand in India and China, and unplanned disruptions in Canada, Venezuela and Nigeria.
The latter half of the week, however, proved to be a very different story as the three major indices traded lower because of a sharp drop in oil prices as the dollar moved higher, and traders took profits following a winning streak that pushed crude to 2016 highs. Retail, energy and chip stocks were among the weakest.
Global bond yields crumbled to zero and went negative in some cases, causing financial stocks to move lower. While global central banks have tried to be as accommodative as possible, they have actually pushed yields lower, and that hurts bank profits.
Gold, on the other hand, traded at a three-week high as investors looked for safe-haven assets in this type of environment.
Brexit
On June 23, Britons will go to the polls to vote on whether the U.K. should remain in the 28-nation European Union or pull out.
The biggest issue in the campaign is immigration, as refugees from the Middle East and Northern Africa flee conflicts in search of safety and greater opportunity on the continent. Also, those supporting a British exit, or Brexit, believe the EU has taken too much power away from the British government.
Those calling for the U.K. to remain say EU membership gives Britain access to the world’s largest trading bloc and greater overall heft on the global stage.
Prime Minster David Cameron warned that the decision is “so important for our country — it’s bigger than a general election.” Cameron made his pitch for a vote to remain in the EU on BuzzFeed’s Live EU event.
The pound has been under pressure because of fears a Brexit would trigger a recession and kill jobs in the U.K. But, if U.K. voters choose to leave, Cameron would have to notify the European Council, and then there is a two-year negotiating process to work out the details of the exit. In other words, the June 23 vote is not an isolated event where all issues are magically resolved the following day.
Week ahead
The earnings calendar remains very light until the second week of July. However, there are a number of economic reports to watch, including Retail Sales, Producer Price Index, Industrial Production, Consumer Price Index and Housing Starts.
Friday will bring what is known as "quadruple witching," an event that occurs once per quarter in March, June, September and December. On those days, contracts for stock index futures, stock index options, stock options and single-stock futures all expire together. Because traders attempt to unwind their futures and options positions before they expire, and, frequently, new contracts are purchased to replace closed ones, the days leading up to Quad Witch Fridays tend be more volatile as volume surges with all the transactions.
Apple
The Apple Worldwide Developers Conference will take place June 13-17 in San Francisco. The conference is held annually, and it gives developers from around the world a chance to meet with Apple engineers and sit in on workshops and software sessions.
This could potentially be a market-moving event for Apple stock and related companies in the tech space, because the company typically kicks off each conference with a keynote speech in which it makes major announcements and provides a look at upcoming products and services and new operating systems.
Brian White, analyst at Drexel Hamilton, said in a research note, “We expect Monday's keynote to be a 'soul-filled' event with a focus on software and services that expand the reach of Apple's digital matrix, while laying the foundation for exciting new innovations in the future.” Apple is a top stock pick for the second half of 2016.
