What Will Move Markets This Week

Inflation data, Sell-side Shop Conferences, and Central Banks highlight another busy week for the markets.

Indices are strong out of the gate. The upbeat tone is emanating from China as Beijing removed additional COVID-related shutdowns and President Xi Jinping signaled the restrictions on Chinese tech are coming to an end.

The early strength has indices pushing into key resistance levels. The question facing traders to kick off the week- Will buyers step in and break us out above key resistance levels? Participants may want to see some of this week’s economic data and corporate headlines before wagering bigger bets. It is a big ask for investors to get aggressive ahead of next week’s Fed. This is likely to lead us into a choppy environment for the next 5 to 7 sessions.

The Chinese lockdown remains one of the primary headwinds for the global supply chain which is having knock-on effects on inflation. Any sense that these tensions could ease will be a positive for the markets.

Easing tensions will help set the tone for an important week in the markets. Inflation data on Friday garners the most attention. However, a busy sell-side conference season could provide us greater insight into Q2’s corporate progress. The market will also navigate a few central bank decisions and headlines from big-cap tech. This sets the table for next week’s Fed decision which will see the central bank update its latest projections and Fed Chair Powell take the mic.

A Recap of Last Week

Stocks fell on Friday to cap their eight week of losses out of the last nine. For the week, the Dow fell -0.9%, the S&P -1.2%, and the Nasdaq  -1.0%.

Indices failed to build on the prior week’s momentum. Equities stalled as buyers failed to step in above key resistance levels. A slew of headlines led to the pause including:

  • On Tuesday,P. Morgan (JPM) CEO Jamie Dimon stated that he saw an “economic hurricane” on the horizon and that his bank would remain conservative in the current environment.
  • Tesla (TSLA) CEO Elon Musk echoed those comments on Friday, stating he had a “super bad feeling” about the economy and that his company would need to cut approximately 10% of its
  • Salesforce Inc (CRM) posted a solid round of earnings Tuesday after the bell, but the company’s outlook was lowered due to FX headwinds.
  • Microsoft (MSFT) followed suit and provided a rare pre-announcement, warning that it would miss Q4 (June) results due to the same currency challenges.

The headlines came as Fed officials continued to push forward with plans to raise interest rates. A 50-basis point increase is all but set for the June meeting next week and then later in July. September remains open as the Fed will assess the impact from increases at the next two meetings. This has market participants sifting through economic data looking for clues. The September reassessment will set up the late August Jackson Hole Fed symposium as a major event.

Last week’s economic data did not corroborate that we are headed into a recession. In fact, the strong jobs number on Friday led to some of the selling pressure that dragged markets into the red for the week. The general thought is the Fed will continue to choke off growth and fail to manage a smooth landing because economic data is reflecting false strength.

The markets will continue to digest Fed commentary and economic data as we close in on next week’s decision. Central banks will remain in focus this week as the European Central Bank, India’s RBI, and Australia’s RBA are all expected to hike rates.

Watching the reaction to the dollar around commentary and data will be important for traders moving forward. The Dollar Index has been losing steam the past few weeks and is testing its 50-sma (101.71).  Continued cooling of the greenback will help ease some concerns around the multinational profit warnings (CRM, MSFT).

 

Key Support/Resistance Levels

  • S&P
    • Support: 4075 held support twice last week. A break of this area would set up a test for the psychological 4K level.
    • Resistance: 4150 has been tested on multiple occasions. Markets have breached these levels but failed to find meaningful buyers. We come in testing this area early Monday.
  • Nasdaq
    • Support: 12,550 was a solid pillar for bulls last week. A break below and the 20-day moving average (12,266) moves into focus with the May lows below 12K on the table.
    • Resistance: 13,000 is the key hurdle for bulls. A squeeze above this level would set up a test of the 50-sma (13,294) for the first time since April 21. That is when Amazon (AMZN) earnings rocked tech markets.
  • Dow
    • Support: 32,500 held support on two tests last week. This appears to be a stout level underpinning market activity.
    • Resistance: The 50-sma (33,397) sits above and has not been tested since May 5 (Fed Day).

Four Stories to Watch This Week

  • Consumer Price Index (CPI): The market waits for the next big clue on pricing pressures. The Bureau of Labor Statistics will release the Mat data on Friday at 8:30am ET. Expectations are for CPI to increase 8.2% y/y compared to the 8.3% jump in April. Core CPI (ex food and gas, or items out of the Fed’s control) is projected to increase 6.0% y/y, down from the 6.2% rise in May. Any suggestion in the data that we have hit “peak inflation” would be welcomed by the market. China reports its inflation numbers on Thursday night.
  • Central Banks: Three major central banks meet this week. The European Central Bank (Thursday), Australia’s Reserve Bank (Tonight), and India’s Reserve Bank (Tuesday) all meet this week. Each bank is expected to tighten the screws on global inflation. The market should digest this news as each rate hike has been telegraphed. Markets will react to any additional commentary added, particularly in ECB President Christine Lagarde’s press conference which will follow its decision. Lagarde has said that the euro area deposit rate would be out of negative territory by September. These will all set the table for next week’s Fed meeting.
  • China Re-Opening: This is, arguably, the most important story for the global economy. China continues to take steps to re-open its economy from its terrible “zero Tolerance” COVID policy. Chinese President Xi Jinping removed further restrictions as the economy moves back on the assembly line. This should help ease supply chain tensions.
  • Sell-side Shop Conferences: MSFT and SNAP opened the door for a busy pre-announcement season. There are a lot of variables in the market and companies will want to get out ahead of the news. This week we have a busy calendar with the Goldman Sachs Travel and Leisure, Bank of America EV Charging Summit, Capital Link Maritime Show, HSBC Transports and Logistics, J.P. Morgan Automotive, Goldman Sachs, Global Semiconductor, and UBS Global Industrials headlining a busy week of conferences. It is a slow week for earnings but the potential for pre-announcements could make this a big week for Q2 earnings expectations.

Four Stocks to Watch this Week

  • Apple (AAPL) holds its Worldwide Developers Conference this week. It is expected to update its iOS/iPad OS, macOS, tvOS, and watch OS as well as make other software reveals. Analysts believe there could be another surprise on the hardware front. Speculation is that the company could announce its entry into the AR/VR market with a tease of its Apple Glasses which could make their way to shelves by the holiday season or 2023. Over the past 10 years, shares of AAPL have tended to underperform during WWDC however they have outperformed the S&P by 70 bps in the month following announcements.
  • Amazon (AMZN) shares split 20:1 today. Do not be shocked when you go look at shares and see them trading at $120! Stay calm, all is well. Share count jumps from 509 million to 10.2 billion. The split will open the stock open to more retail trading which will boost volatility. This also opens speculation that the name could be added to the price-weighted Dow. Look for shares to see a boost into the 50-sma ($134).
  • MetaPlatform (FB) continues to work through the news that CFO Sheryl Sandberg is stepping down from her post after 14 years. On Thursday, the company will continue its push into the metaverse as it changes its ticker to ‘META’ from ‘FB’.
  • Advanced Micro Devices (AMD) holds an analyst day on Thursday. Wells Fargo expects a positive review of the company’s product roadmap and technology differentiators. The firm expects AMD to announce a long-term revenue CAGR of 20%+. BNO Capital notes AMD is well ahead of its financial targets set for 2023 at its last analyst day in 2020. Shares of AMD have broken out above the 50-sma ($98) ahead of this meeting.