Weekly Stock Market Update & SPY Technical Analysis
Investors are gearing up for a shortened holiday week as markets will close early on Tuesday at 1 PM ET and remain fully closed on Wednesday for Christmas.
Despite the holiday, this week’s developments will be closely monitored following last week’s spike in market volatility and key events. Markets are still digesting a slew of economic updates from last week, including the Fed’s FOMC meeting and interest rate decision, Q3 GDP data, December’s Consumer Sentiment report, and the PCE inflation index.
These reports have left investors uncertain about the road ahead. The Fed’s commentary last week was mixed, with the primary takeaway being that fewer interest rate cuts than previously anticipated are likely in 2025 due to persistent inflation. This sent the volatility index (VIX) to levels not seen since the August flash crash earlier this year, triggered by the Japanese yen carry trade. The rise in volatility weighed on indexes, leaving investors questioning whether the market is topping out or merely pulling back.
A slight sense of relief emerged at the end of last week when the PCE inflation report came in at 2.4%, slightly below expectations of 2.5%. This prompted a modest bounce in stocks on Friday, though not enough to restore full investor confidence.
This week’s attention shifts to the consumer confidence report, projected to rise month-over-month from 111.7 to 113.0. This follows last week’s Consumer Sentiment Index, which reflected its strongest reading since April. Consumers are generally feeling more optimistic, supported by falling interest rates and the transition to a new presidency. However, sentiment could quickly shift after the holidays, depending on the direction of Trump’s administration.
Although the stock market does not perfectly mirror the economy, the two are interrelated, and understanding their dynamics is essential for making informed investment decisions. The reports mentioned above form foundational elements that can influence markets over extended periods. We will continue monitoring these developments to determine the best course of action.
SPY Technical Analysis
SPY closed just below its 50-day moving average last week, a level it has tested only four times this year. Each previous instance saw the index rebound within days or weeks of the retest. If this pattern holds, we may see buying activity pick up at this level, gradually pushing the index higher. However, keep in mind that trading volume and momentum could slow this week due to the Christmas holiday.