Weekly Stock Market Update & SPY Technical Analysis
The stock market has been “boring” over the past few weeks, but things are about to get exciting again as investors receive important economic data and earnings season kicks off.
Since Kevin Warsh took over as the new Federal Reserve Chair, investors have been increasingly uncertain about the future of monetary policy. Warsh was initially viewed as someone who could favor lower interest rates, making his appointment appear bullish for stocks. However, his first remarks and Fed meeting were far more hawkish than many investors expected. The main problem? Inflation. Ongoing inflation pressures (primarily because of the Middle East chaos) have made it extremely difficult for the Federal Reserve to justify additional interest rate cuts.
In fact, several Fed officials now believe rates may need to remain elevated, or potentially move higher, if inflation continues running above the central bank’s 2% target. That doesn’t automatically mean the market has to crash, but it removes one of the biggest potential catalysts investors were counting on…cheaper money.
The Two Factors that Drive the Stock Market
One is interest rates. Interest rates determine how expensive it is for businesses and consumers to borrow money. Lower rates generally support higher stock valuations because companies can finance growth more cheaply, consumers have more spending power, and bonds become less attractive compared with stocks. Higher rates create the opposite effect by increasing borrowing costs and making future corporate earnings less valuable in today’s dollars. This is why inflation data is so important. The Federal Reserve cannot comfortably lower rates until it sees convincing evidence that inflation is moving back toward its target.
This week, investors will receive both the Consumer Price Index on Tuesday and the Producer Price Index on Wednesday (We’ll cover these reports as they’re released in our morning analysis for Hyper Stocks Pro members). CPI measures inflation experienced by consumers, while PPI measures inflation at the producer level. A cooler than expected report could revive hopes for easier monetary policy, while another hot report could increase fears that rates will remain higher for longer.
Fed Chair Kevin Warsh will also testify before Congress, giving investors another opportunity to hear how concerned the Federal Reserve is about inflation and whether future rate cuts are still on the table.
Second factor is corporate earnings. Q2 earnings season kicks off this week, beginning with the major banks. JPMorgan, Bank of America, Citigroup, Wells Fargo and Goldman Sachs are scheduled to report on Tuesday, followed by companies including Morgan Stanley, BlackRock, ASML, Johnson & Johnson, Taiwan Semiconductor, Netflix, GE Aerospace and UnitedHealth later in the week.
Strong earnings and bullish guidance could allow the market to continue climbing even without immediate rate cuts. However, disappointing earnings combined with persistent inflation would create a much more difficult environment because investors would be dealing with both high interest rates and weakening corporate growth.
SPY Technical Analysis
Despite all the uncertainty surrounding inflation, interest rates and geopolitics, SPY continues to show impressive strength, which means if rate cut chances do increase + earnings come above expectations, the market could be setting up for a strong back half of the year. The overall trend remains bullish, but SPY is now approaching an important resistance zone around $759–$760. A confirmed breakout above this area could open the door for another leg higher. The strongest support to defend is around 740.00.
Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of capital. Always conduct your own research or consult with a licensed financial advisor before making investment decisions.
Hyper Stocks and its contributors may hold positions in some of the securities or assets mentioned above. These positions are subject to change without notice. Any opinions expressed reflect current views at the time of writing and are not guarantees of future performance. Past performance does not guarantee future results.