Weekly Stock Market Update & SPY Technical Analysis
It is estimated that nearly $3 trillion in value was erased from the stock market last week. While most headlines blame the latest unemployment reading, in reality, it was a combination of events that led to the sell-off.
First, let’s start with earnings. The Magnificent Seven group of mega-caps—Apple, Microsoft, Google, Amazon, Nvidia, Meta, and Tesla—has been the backbone of the market rally this year, making their earnings extremely critical to markets. Although most of them met forecasts, their earnings weren’t strong enough to justify their valuations. Excitement around artificial intelligence boosted outlooks exponentially in the past six months, but investors faced a reality shock after this round of earnings, suggesting that while growth is still present, it may not be as sustainable as expected.
The second impactful catalyst for stocks last week came from the Federal Reserve. While they positively reinforced an interest rate cut this year, their comments about the economy left investors uncertain. The combination of a pessimistic tone from the Fed and the unexpected jump in unemployment was enough to heighten fears and force indexes lower.
Last but not least, escalations in the Middle East are painting a grim picture for the near future of the war. Israel’s attack on Lebanon last week left global investors fearing that Iran would retaliate over the weekend, which is also a major catalyst behind the sell-off.
Coming into this week, investors will still be weighing in all that’s mentioned above, and will also be facing more economic data and earnings. On the economic front, markets are anticipating more data from the services sector, June’s U.S. trade deficit report, June’s wholesale inventories. Several large pharmaceutical companies will be reporting their quarterly results, names such as Eli Lilly, Amgen, and Gilead Sciences. Like tech stocks, pharmaceutical companies have also surged to new highs this year, so their earnings will be watched closely to see if their valuations can be justified.
SPY Technical Analysis:
SPY’s daily candle (not shown in the chart above) slipped to its 100 day moving average on Friday, a level not seen since April of this year. The last time SPY tested this level, buyers stepped in and bought it up into a multi-month rally; however selling volume indicates that this time may not bounce as easily. If buyers cannot defend this level and slip below the 528.80 mark, then the S&P faces risk of a further decline to the 518.00-522.00 mark. Sellers are currently controlling the trend, buyers need to close SPY back above the 539.92 mark at least to regain the overnight uptrend.