Weekly Stock Market Update & SPY Technical Analysis
Inflation and Economic Trends:
Inflation data has dominated the spotlight over the past three years, with the rate climbing as high as 9.1% at one point. This surge forced the Federal Reserve to raise interest rates to 5.50% in an effort to control prices. Despite the Fed’s aggressive approach, inflation has not successfully fallen below the 2% target, and rising unemployment eventually compelled them to cut rates before achieving their goal.
Looking ahead, the labor market is likely to be a key focus in 2025, with this week’s data being the first in a series of critical reports to monitor. Investors are eagerly awaiting December’s ADP Employment Report and the U.S. Unemployment Rate, both of which will play a crucial role in shaping market direction. While inflation data remains relevant, the gradual increase in U.S. unemployment poses a significant risk to economic health, as higher unemployment rates are often precursors to recessions. Currently, the U.S. Unemployment Rate is expected to remain steady at 4.2% month-over-month (MoM).
The Federal Reserve’s Role:
The battle against inflation is far from over. Rising prices in essentials like food and energy, as well as discretionary items, continue to strain the American consumer. It would be premature for investors to declare victory, and Federal Reserve members have been vocal in emphasizing this reality.
On Wednesday, the Fed will release the FOMC Minutes Report, which will provide insight into members’ views on the economy and reiterate discussions from their most recent meeting. While no major surprises are expected, markets often experience heightened volatility whenever Fed members release reports or make public comments.
Consumer Sentiment:
On Friday, investors will turn their attention to the preliminary Consumer Sentiment report, which is projected to remain unchanged at a reading of 74, matching last month’s figure. This metric has steadily improved over the past six months, recovering from its low of 66.4 in July of last year. However, rising prices for staples like eggs and cattle could weigh on consumer optimism in the coming weeks if these trends persist. Since consumer spending is a cornerstone of the economy, monitoring sentiment is essential.
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SPY Technical Analysis
With the Fear & Greed Index hovering near “Extreme Fear,” markets are in a fragile state and cannot afford unexpected surprises this week. Investors are already uneasy due to elevated volatility in recent weeks, and the aforementioned reports are likely to solidify market direction.
Currently, the broader market trend remains bullish, although short-term volatility has increased. The VIX (Volatility Index) remains well above its December lows, reflecting ongoing market anxiety. However, a positive sign for the bull market is evident in the capital rotation across sectors, with certain industries continuing to hit new highs despite pullbacks in SPY and other major indexes.
Investors should remain vigilant, as this week’s data will play a pivotal role in reinforcing or challenging the current market trend.