Weekly Stock Market Update & SPY Technical Analysis
The market volatility index (VIX) moved to levels not seen since April last week following a sharp technology sector sell-off. The catalysts behind the downside move were earnings from Tesla and Google, which reported mixed results that left traders uncertain about the remainder of the earnings season. Tesla, one of the world’s leading electric vehicle sellers and a top name in innovation, missed on profit estimates and declined more than 25% following the report. Google also sold off following their report despite topping revenue and profit estimates, which was likely a result of their YouTube ad revenue falling short of expectations. Weakness in ad revenue was seen as weakness for other media companies that rely on ad sales, such as Meta, which also sold off in sympathy with Google’s move. The unexciting earnings, combined with geopolitical and economic uncertainty, led to a sharp downside move in the rest of the tech sector, which dropped the S&P 500 and the Nasdaq composite indexes to their monthly lows.
It wasn’t all bad news last week. The U.S. GDP report topped estimates at 2.8% compared to the 1.9% projections, which on paper is great news, but markets were unsure if the jump in the economic growth would boost inflation. That uncertainty was relieved by end of week when the PCE index came in line with estimates, reflecting improvement in the year over year inflation rate. The double shot of good news wasn’t enough to boost buyers’ confidence, but there will be plenty of events this week that could reinforce either side.
To kick off the week, markets will be focused on the Consumer Confidence Index and the FOMC Meeting. The Consumer Confidence Index has slowly declined this year from its high of 79.4 to a reading of 68.2 last month. Economic uncertainty and lingering inflation has ravished the consumer outlook, which is part of the reason for the weakened sentiment. While this index is important, it won’t be as big of a market mover as the FOMC Meeting, which will be held on Wednesday. The Federal Reserve is expected to update markets on their current economic outlook and monetary policy, which involves selecting interest rates. Interest rates are anticipated to remain unchanged on this meeting, but markets are hoping for a path to a rate cut by September. Apart from the interest rate decision, Jerome Powell will be holding a press conference, which will be watched closely by traders.
Last but not least, Microsoft, Meta, Apple, and Amazon will all report earnings next week, and given their market size, these companies will influence how the week will end. We already saw an example of how severe earnings can be following Tesla’s and Google’s drop last week, so it goes without saying that these earnings will have a massive impact on the market.
SPY Technical Analysis:
SPY briefly declined below its 50 day moving average support last week, but was quickly bought back above it on Friday. This line is usually considered a “pivot” point for Wall Street, stocks trading above it are viewed bullish, and those trading below it are viewed as bearish. As of Friday, SPY closed right above the MA, but not strong enough to suggest a full recovery yet. Probabilities are that traders are awaiting this week’s critical events to pass before setting a new trend.