Weekly Trader's Outlook

If you read last week's blog, you might recall that Nate's outlook for this week called for potentially big swings one way or the other given the likely impact of key inflation and earnings data releases.  Boy, did he nail that one.  Wednesday's Consumer Price Index report (CPI) showed both headline and Core data exceeding estimates, for the third straight month, sending markets into a bit of a tailspin with the S&P 500 trading down nearly 1.5% intraday before recovering some of those losses into the close. As the data showed, core services inflation continues to remain frustratingly sticky, confirming the notion that the January and February CPI reports were not just due to seasonal data. One data point can be called an anomaly, two data points become something to monitor, but the third consecutive data point becomes a trend, and that trend is not looking good for the disinflation narrative. The rise in March CPI calls into question the Federal Reserve's monetary easing scenario, one of the many catalysts of the rise in equities since late last year. This notion in addition to a rising dollar, a surge in bond yields, and a fall in rate cut forecasts now point to more signs that markets may be taking this data more seriously.

Interestingly, a somewhat tamer Producer Price Index report (PPI), the following day, led investors to "buy the dip" in technology stocks, albeit on very light volume, pushing the S&P 500 right back to Tuesday's closing price of $5210, on the nose, an important technical distinction that we will cover later in the Technical Take section below. Investors likely weighed the PPI data’s potential influence on upcoming the PCE reading which is what the Fed focuses on. Friday's disappointing results from top bank JPMorgan, as well falling Consumer Sentiment set the equities market up for declines, leading to back-to-back weekly losses for the S&P 500.

Based on this week's price action, investors now appear a bit shaken, as the S&P 500 is now trading at its 50DMA, a level it hasn't closed below since November, and the VIX is showing signs of acceleration, trading above 18.00 this week for the first time also since November. Soaring commodity prices, a reigniting of inflation fears, and rising interest rates have left consumers questioning their future buying power and investors wondering if one, two, or any rate cuts are on the horizon.

Up until this week, equity markets have digested the inflation data, even as its given way to higher rates and declining probabilities of rate cuts. Why? Because stronger economic data has led to expectations of a spend-happy and resilient consumer, expanding corporate profit margins, and an earnings season that could surprise to the upside. Analysts now expect the Q1 earnings growth rate for the S&P 500 to be 3.2% year-over-year (per FactSet).  If 3.2% is the actual growth rate for the quarter, it will mark the third-straight quarter of year-over-year earnings growth for the index. Much of that growth is expected to be in the Information Technology, Communication Services, and Consumer Discretionary sectors. These sectors also happen to house all the Mag7 stocks. If predictions are correct, then the market could power ahead.  Unfortunately, most of the Mag7 stocks won’t begin reporting earnings until the week of April 22nd.

As for next week, we still have several potential catalysts to help markets sort things out. These are listed below.

Economic:

• Monday (Apr. 15): Retail Sales, NAHB Housing Market Index
• Tuesday (Apr. 16): Housing Starts, Industrial Production 
• Wednesday (Apr. 17): Fed’s Beige Book, Mortgage Apps, EIA Crude Oil Inventories
• Thursday (Apr. 18): Jobless Claims, Leading Indicators

Earnings:

• Monday (Apr. 15): Goldman Sachs (GS)
• Tuesday (Apr. 16): United Health Group (UNH), Johnson & Johnson (J&J), Bank of America (BAC), Morgan Stanley (MS), United Airlines (UAL)
• Wednesday (Apr. 17): CSX Corp (CSX), Las Vegas Sands (LVS)
• Thursday (Apr. 18): Netflix Inc. (NFLX) Taiwan Semiconductor (TSM)
• Friday (Apr. 19): Proctor & Gamble (PG), American Express (AXP)

It was a busy week in terms of economic data, starting with Wednesday's Consumer Price Index, highlights are below…

• March CPI came in above expectations, with headline data of 3.5% and core of 3.8% failing to show signs of inflation improvement. The headline annual rate had been 3.2% in February, with core at 3.8% that month.
• CPI strung together three straight months of surprising strength and likely became a major impediment to the Federal Reserve's plans to cut rates.
• March PPI showed a tamer inflation picture, as headline and core PPI rose 0.2%, versus analysts' expectations of 0.3% and 0.2%, respectively.
• The 0.2% rise in PPI was the lowest monthly growth since December and down from 0.6% in February. However, on a year-over-year basis, core PPI growth of 2.4% in March was above the consensus 2.3% estimate. Headline PPI rose 2.1% in March, the most since April 2023.
• UMich Consumer Sentiment headline figures only missed the consensus forecast modestly (printing 77.9 versus an expected 79). It was, however, the inflation expectations components that riled investors, as it rose above expectations, with the close-watched 5-10 median projection rising to 3.0% from 2.8%.
• 10-year Treasury yields (TNX) lost steam late in the week after trading well above 4.5% for the first time since November on the heels of the hotter than expected March Consumer Price Index report.  Also worth noting, the TNX hit a fresh year-to-date high of 4.59%, which gives you a sense of the trend on yields. The TNX has been in an uptrend (i.e. higher highs, higher lows) in 2024 and this is reflecting the shift in the narrative around how strong the economy is, the trajectory of inflation, and market expectations around how many rate cuts the Fed will deliver this year.
• Market hopes around the potential for Fed rate cuts greatly diminished, like they've done for most of the year. On a week-over-week basis, (as of yesterday) the Bloomberg probability of a June rate cut has moved down to 27% from 58% last Friday. The 27% rate cut probability in June represents a new low, so this speaks to the trend of a "higher for longer" Fed rate policy.

S&P 500 Index (SPX - 95 to 5,116)

On a weekly basis, the S&P 500 index dropped ~1.5% this week, following the hotter than expected CPI report, financial sector earnings disappointment, and weaker than expected Consumer Sentiment. The sell-off caused the SPX to test its 50-day Simple Moving Average (SMA) for the first time since last November (currently at 5,110). Is this the beginning sign of a potential change in trend (from uptrend to either sideways or lower)? It looks that way in the short term, at least. For the intermediate trend, the index is back above this indicator (50-day) midday Friday, so we'll need some more trading days to assess price action. Keep an eye on the $VIX for additional clues. We are currently well above our November closing high of 16.87, so the market is clearly signaling angst heading into next week. The short-term uptrend has given way to consolidation while the intermediate-term uptrend is holding on for dear life. Near-term technical translation: consolidation to potential break down.

Nasdaq 100 Index (NDX - 200 to 17,970)

The Nasdaq 100 Index tried to exhibit relative strength this week, trading up into Friday's open, on the heels of Thursday's bounce off the tamer PPI data, but that proved to be short-lived, closing down ~0.50% on the week. The drop took the index right down to its 50-day Simple Moving Average for its fifth test in the past seven trading days. Up to this point, the moving average has provided a valid support level, but as they say, you can keep knocking at the door, and eventually someone's going to open it. Therefore, from a near-term trading a perspective, you have a sense of what levels you are trading against–on the downside, support is at the 50-day SMA of 17,916, and on the upside, resistance appears to be around 18,300, roughly where the all-time closing high resides. If the NDX can notch a fresh all-time closing high (above 18,339) then this would be incrementally bullish and reinforce the uptrend. Near-term technical translation: bullish to potential consolidation.
 

The Bloomberg chart below shows the current percentage of members within the S&P 500 (SPX), Nasdaq 100 (NDX) & Russell 2000 (RTY) that are trading above their respective 200-day Simple Moving Averages. If you read last week's blog, you might recall that Nate mentioned the contraction in breadth, driven by some mid-week selling pressure. Compared to last Friday, the SPX (white line) breadth moved down to 76.06%, the RUT (blue line) pulled back to 52.66%, and the NDX (orange line) decreased to 69.39%.

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 (234 today): Mobile-Health Network (MNDR + $5.06 to $15.22), Argan Inc. (AGX + $10.43 to $59.78), Coupang Inc (CPNG + $2.18 to $21.25), Iczoom Group Inc. (IZM + $1.20 to $44.38), Indonesia Energy Corp. (INDO + $1.93 to $4.67)

This Week's Notable 52-week Lows (240 today): NIO Inc. (NIO - $0.32 to $4.13), Rivian Automotive (RIVN - $0.43 to $9.14), Sirius XM Holdings Inc. (SIRI - $0.12 to $3.22), Lucid Group Inc. (LCID - $0.01 to $2.48), Starbucks Corp. (SBUX - $1.41 to $84.49)