During the week, the S&P 500 had lots of up-and-down swings (trading in a 2.4% range) and finished up 0.55% for the week. Investor sentiment got a boost on Friday from the upbeat earnings report from Apple.
Other key tech earnings reports from earlier in the week were mixed–Amazon posted strong results and stronger than expected growth (17% vs. 14.8% est), but AMD’s in-line quarter and SMC’s higher, but not high enough, guidance disappointed.
If you had asked me about where the SPX technicals stand on Wednesday, I would have said they looked somewhat bearish since the index appeared to be getting hit with selling pressure after attempting to rally back towards the 50-day Simple Moving Average (SMA).
Technically speaking, when the underlying drops below a longer-term moving average and then rallies from the underside back up to that indicator and gets rejected, its typically viewed as a bearish confirmation and called a “pullback or kissback”.
With Friday’s jump in the SPX, the index has moved back up to just below the 50-day SMA (currently 5,129), finishing at 5127.79 (12 points off the 5139 high) This has me wondering, “will there be another rejection? It sure feels like the jobs reports, along with a meaningful drop in bond yields (10-year yields hitting the lowest levels since April 11th), have shifted near-term sentiment in favor in the bulls.
Friday’s near 2% jump in the Nasdaq Composite has placed the index above its 50-day SMA (currently 16,057). This puts the $COMP in a relatively more bullish technical position than the SPX. The index is also roughly ~2.5% away from its all-time intraday high of 16,538 which was hit back on March 21st.
After five months of sharp and steady gains beginning last November, the mood in the financial markets has shifted in recent weeks. Last week, the catalysts for the swing—Fed policy, the jobs market, and corporate earnings—were all in the spotlight. While the net result was a gain for stocks following April’s decline, which was the first monthly loss since this past October, recent market swings reflect a new set of facts emerging from incoming data.
The profit picture continues to improve with the lion’s share of S&P 500 companies having reported first-quarter results. While the Fed and jobs report grabbed most of the attention last week, incoming quarterly announcements have largely been beating expectations, while management commentary and outlooks have been upbeat, supporting recent upward revisions to estimates for 2024 profit growth.
Earnings growth in the most recent quarter has been strongest in the consumer discretionary, communication services, health care and industrials sectors, a positive sign that earnings support is broadening out across the market.
Markets have been surprisingly and encouragingly resilient over the last month as rates have risen and expectations for Fed rate cuts have been pushed out. The fact that the market has gone from pricing in six rate cuts to one rate cut in 2024 over just the last few months with only a 5% pullback is likely a reflection of the earnings growth outlook. Similar or even smaller adjustments to Fed expectations during the last two years produced much larger negative reactions in stocks. I consider that a relatively bullish sign.
In any case, I always encourage my members to trade what you SEE not what you think!
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