Weekly Trader's Outlook

If you read last week's blog you might recall that my primary forecast for this week was "Volatile" with a secondary outlook of "Slightly Bullish." There were a lot of potential market moving catalysts this week and the bulls did a good job of navigating the terrain. On the week, the S&P 500 is on pace for a near-3% gain, and that follows last week's 4% rally. And this week's move higher is despite a mid-week pullback following a weak GDP reading and ADP report (more on this in the "Economic Data, Rates & the Fed" section below). From my view, the eight-day rally in stocks is being driven by stronger-than-expected Q1 earnings reports, especially from mega-cap tech, along with more encouraging rhetoric around trade/tariffs. The sentiment around the AI secular growth story feels like it's been resurrected, and market seem more sanguine around companies' ability to navigate the potential impact of tariffs. So, what's the bearish perspective? Investors are overestimating how quickly trade deals/memorandums will manifest and are underestimating the potential impact that tariffs and trade disruption will have on economic growth and by extension, corporate profits.

At the time of this writing (2:10 p.m. ET), stocks are near the highs of the session (DJI + 584, SPX + 91, COMP + 322, RUT + 49), buoyed by a Wall Street report that China was inquiring into what fentanyl changes the U.S. is wanting from trade negotiations. It appears that trade negotiations are continuing to move toward some type of resolution, albeit at a gradual pace. Will they move fast enough to avoid any economic repercussions? Markets are behaving as if that will be the case, but we'll continue to monitor the hard data in the coming weeks. Next week investors will hear from Powell at the May Federal Open Market Committee (FOMC) meeting, though I'm not sure that his message will deviate from what he conveyed back in mid-April (patient stance, monitoring potential inflationary impact of tariffs, along with stability in labor market). Earnings will also be in the spotlight next week, especially since there aren't a lot of economic reports on deck. We'll hear from several AI-centric companies, starting with AI-darling Palantir on Monday after the bell. Perhaps the recent bullish momentum around AI can persist if the results/guidance are supportive of that, but this may set the Nasdaq 100 up for a potential test of overhead resistance at the 200-day SMA (more on this in the "Technical Take" section below). And speaking of technicals, similar to last week, stocks are near-term overbought, but that doesn't mean they can't continue to move higher. Given today's price action, I wouldn't be surprised to see bullish momentum continue in the early part of the week, but I'm a little concerned that we may be setting up for a "sell on the news" reaction following Wednesday's FOMC wrap-up. Therefore, my forecast for next week is "Slightly Bullish" for the first half of the week and "Slightly Bearish" for the back half of the week. What could challenge my outlook? The most obvious unknown is any trade/tariff headlines, which could either be in the constructive or destructive category.

Other Potential Market-Moving Catalysts:

Economic:

- Monday (5/5): ISM Services

-Tuesday (5/6): Trade Balance

-Wednesday (5/7): Consumer Credit, EIA Crude Oil Inventories, FOMC rate Decision, MBA Mortgage Applications Index

-Thursday (5/8): Continuing Claims, EIA Natural Gas Inventories, Initial Jobless Claims, Productivity-Preliminary, Unit Labor Costs, Wholesale Inventories

-Friday (5/9): -no reports-

Earnings:

-Monday (5/5): Ares Management Corp. (ARES), Cummins Inc. (CMI), BioNTech SE (BNTX), Tyson Foods (TSN), Palantir Technologies Inc. (PLTR), Vertex Pharmaceuticals (VRTX), Williams Companies Inc. (WMB), Realty Income Corp. (O), Clorox Co. (CLX)

-Tuesday (5/6): Duke Energy Corp. (DUK), TransDigm Group Inc. (TDG), Constellation Energy Corp. (CEG), Marriott International Inc. (MAR), Datadog Inc. (DDOG), Advanced Micro Devices (AMD), Arista Networks (ANET), Energy Transfer (ET), Coupang Inc (CPNG), Electronic Arts Inc. (EA)

-Wednesday (5/7): Uber Technologies (UBER), Walt Disney Co. (DIS), Shopify Inc. (SHOP), Arm Holdings PLC (ARM), Applovin Corp. (APP), DoorDash Inc. (DASH), Fortinet Inc. (FTNT), Carvana Co. (CVNA)

-Thursday (5/8): ConocoPhillips (COP), Cheniere Energy Inc. (LNG), Sempra (SRE), McKesson Corp. (MCK), Coinbase Global Inc. (COIN), Cloudflare Inc. (NET)

-Friday (5/9): Enbridge Inc. (ENB), Sun Life Financial Inc. (SLF), Pembina Pipeline Corp. (PBA), Plains All American Pipeline LP (PAA)

Markets received a heavy dose of economic data this week, highlighted by this morning's monthly jobs report. The good news is that April nonfarm payrolls came in well above expectations, suggesting the U.S. labor market remains healthy. Perhaps the report was a sigh of relief for the bulls following ADP's 62K private-sector job gains (nine-month low), a six-month low in JOLTS and a two-month high in Initial Jobless Claims. Also encouraging for the bulls was a relatively benign inflation data out of the monthly personal consumption expenditures (PCE) report. Here's the breakdown from this week's reports:

-Nonfarm Payrolls: Increased 177,000 in April which was above the 138,000 expected. However, there were downward revisions to the prior two months totaling 58,000 (March was revised down to 185,000 from 228,000)

-Unemployment Rate: 4.2% vs. 4.2% expected

-Average Hourly Earnings: Increased 0.2% in April which represented the smallest gain since August of 2023. Wages are up 3.8% on a year-over-year basis

-Average Workweek: 34.3 vs. 34.2

-ADP Employment Change: Came in a nine-month low of 62K vs. 115K expected

-Consumer Confidence: 86.0 vs. 89.0 expected

-JOLTS - Job Openings: Dropped to a six-month low of 7.192M vs. 7.48M expected

-Q1 GDP (advanced): -0.3% vs. +0.4% expected

-PCE Prices: 0.0% vs. 0.1% expected

-PCE Prices – Core: 0.0% vs. 0.0% expected

-Initial Jobless Claims: Increased to a two-month high of 241K from 223K in the prior week, and well above the 220K expected. Continuing Claims increased 83K from last week.to 1.916M

-The Atlanta Fed's GDPNow "nowcast" for Q1 GDP was revised down to +1.1% yesterday from +2.4% on April 30th

Treasury yields saw some lift this week, primarily driven by this morning's Nonfarm Payrolls report. Compared to last Friday, two-year Treasury yields rose ~8 basis points (3.834% vs. 3.756%), 10-year yields moved up ~6 basis points (4.324% vs. 4.266%) and 30-year yields ticked up ~7 basis points (4.794% vs. 4.721%).

Expectations around potential rate cuts from the Federal Reserve took a substantial dip on the heels of the monthly jobs data. Per Bloomberg, expectations for a 25-basis-point cut at the May FOMC meeting eased to 3% from 11%, while the June FOMC probability dropped to 30% from 55%.

The Nasdaq 100 index (NDX) is on track to add another 3.5% gain to last week's 6% rally. To me it feels like the sentiment around tech and the AI secular growth story experienced a bullish shift following earnings out of Alphabet and ServiceNow last Wednesday (April 23rd). The bullish momentum was given further support from strong earnings reports out of mega-cap tech giants MSFT, META, and to a lesser extent AMZN and AAPL. Now the index is coming up against its first real test of near-term resistance at the underside of the 200-day Simple Moving Average (SMA). As you can see in the chart below the NDX was rejected at the 200-day SMA back on March 25th (denoted by the white arrow). From a near-term technical trading perspective, the index is in a "show me" state, meaning the outlook is cautious until the NDX registers a close or two above the 200-day SMA of 20,176.

Intermediate-term technical translation: cautious/slightly bearish

Whether it's being driven by the better-than-expected Q1 earnings season, improved investor sentiment, easing in Treasury yields, or because domestically focused small caps may be more immune to tariffs, the Russell 2000 index (RUT) has come back to life recently. The RUT is up 16% from its April 7th low and today the index is making a push above key resistance at the 2,000 level. This is a firm bullish development, of course assuming the index closes above that level today.

Near-term technical translation: bullish

The European Union (EU) said that it is preparing to introduce legislation that would ban both anonymous crypto accounts and privacy-preserving tokens, such as Monero and Zcash, by 2027. Under the proposal, article 79 of the Anti-Money Laundering Regulation (AMLR) states that credit institutions, financial institutions, and crypto asset services providers will be prohibited from maintaining anonymous accounts or handling privacy-preserving cryptocurrencies. These privacy-preserving tokens are designed to ensure maximum confidentiality and have been on the radar of regulatory authorities because of the potential for their use in illicit activities.

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq Composite (CCMP) and Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages (SMA). In short, stocks had another up week and market breadth correspondingly continued to expand as a result. On a week-over-week basis, the SPX (white line) breadth moved up to 37.80% from 34.20%, the CCMP (blue line) ticked up to 26.26% from 25.08%, and the the RTY (red line) expanded to 22.20% versus 21.39%.

Market breadth attempts to capture individual stock participation within an overall index, which can help convey underlying strength or weakness of a move or trend. Typically, broader participation suggests healthy investor sentiment and supportive technicals. There are many data points to help convey market breadth, such as advancing vs. declining issues, percentage of stocks within an index that are above or below a longer-term moving average, or new highs vs. new lows.

This Week's Notable 52-week Highs (50 today): Berkshire Hathaway – Class B (BRK/B + $7.89 to $538.12), Cardinal Health Inc. (CAH + $2.64 to $148.17), Duolingo Inc. (DUOL + $60.00 to $460.00), Howmet Aerospace Inc. (HWM + $5.74 to $153.77), Netflix Inc. (NFLX - $16.70 to $1,150.17), Zscaler Inc. (ZS + $3.27 to $230.33)

This Week's Notable 52-week Lows (28 today): Alexandria Real Estate Equities (ARE + $1.30 to $74.72), Becton Dickinson and Co. (BDX - $1.12 to $168.42), Cable One Inc. (CABO - $91.97 to $170.02), Enphase Energy Inc. (ENPH + $0.51 to $45.06), Helen of Troy Ltd. (HELE - $0.02 to $27.69), United Health Group Inc. (UNH - $2.88 to $397.80)