Weekly Market Update & SPY Technical Analysis
Inflation is once again back in focus this week as markets prepare for the Consumer and Producer Price Index releases. Last month’s inflation data sent markets in a spiral after a spike in consumer prices reflected the highest CPI reading since September of last year. Energy, groceries, and rents all climbed in price, which brought the overall year over year CPI to 3.5%. The Federal Reserve’s target rate is 2%, and they’ve been adamant about reaching that level, even if they have to keep interest rates elevated. Current interest are at the highest level in more than 20 years, which is putting serious strain on companies from small to large, but especially those who rely on debt to grow. Young companies in their growth stage use debt to hire and invest back into their business, but when fiscal and monetary policy is tight, it dampers their ability to borrow and borrowing becomes more expensive. Higher interest rates have also historically led to higher level of unemployment, however we’re seeing a phenomena right now where interest rates are high, but unemployment is still at a historical low. This is good news for Americans and labor market, but it forces inflation to linger considering people are working and they have the income to spend, therefore keeping prices elevated.
Last week’s Consumer Sentiment Report reflected the lowest reading since November as fears of inflation surged again. Consumer sentiment was above 75 for all of 2024, but May’s preliminary reading fell to 67, which will likely reflect in this week’s retail sales data and perhaps even in retailers’ earnings. Companies such as Home Depot, Walmart, Ross and other big box stores will release their earning reports this week so that will give better insight on how consumers are behaving. Consumers are at the forefront of our economy so it’s important to get an understanding of what they’re doing with their money, whether that’s saving, spending, or investing.
SPY Technical Analysis:
Chart done on hourly timeframe. Last week was not very eventful in terms of economic reports and earnings, but this week has a lot more uncertainty in the mix so conditions may be a bit more volatile. SPY’s slow climb to start off the month has led it back towards its all time highs, which is our main resistance in focus coming into this week. Buyers need a breakout above 524.61 for continuation to 528.00-530.00. Keep in mind that first time breakouts are rarely ever successful so it may take a few tries to really catch a rally. To the downside, we have multiple supports in place, the most critical being 510.60.