Weekly Market Update & SPY Technical Analysis
The market got what it wanted last week, but the reaction was mixed. What do we mean by that? For one, large cap tech stocks reported record earnings, which is one of the two primary drivers of markets in the long run. The second primary driver is the interest rate, which was also lowered by The Fed last week.
So, with record earnings and lower interest rates now official, why didn’t markets take off? As for earnings, investors seem to be concerned about artificial intelligence spending and how it’s weighing on profits. Yes, names like Meta, Apple, Microsoft, and Amazon all reported strong revenues, but they also all reported significant AI infrastructure spending, with a few of them citing lower profit margins due to it. Investors are afraid that the return on investment may not be worth it, perhaps explaining why the earnings reaction to names like Meta and Microsoft was so mild.
As for interest rates, the market was looking forward to this rate cut because lower rates stimulate spending, borrowing, and the economy as a whole. However there are two reasons why the market didn’t react as positively as expected. One, the rate cut was out of necessity. Fed Chair Jerome Powell said in his press conference that The Fed is moving to cut rates in order to save the labor market, which has shown serious signs of weakness in recent months. The market interpreted this rate cut as an emergency rather than relief. And the second reason the reaction was subpar is because Powell didn’t give strong guidance on another rate cut this year. Investors had been anticipating one more rate cut, however those chances fell significantly after Powell’s press conference.
Despite the mixed reaction, major indexes are still holding near record highs, but some names are beginning to correct to more reasonable levels. Many companies, especially in tech, are trading at extreme multiples, so it may be time for capital rotation out of these names and into names that will benefit from lower interest rates over the next 12 months. Who benefits? Homebuilders, industrials, consumer discretionary, some financial institutions, and more. Companies that rely on debt to grow or have debt-heavy balance sheets will see larger returns thanks to lower rates.
This week’s focus:
The government is still shutdown, which is really leaving investors blind when it comes to the economy. Nearly all economic reports have gone dark so it’s impossible to gauge the health of the economy, another reason why it’s difficult to assess whether or not there will be another rate cut this year. We can imagine that the market will see a big relief when the government shutdown ends, but we won’t know when that will happen for sure. We’ll be watching for signs of a reopening this week.
More earnings ahead! We already saw earnings from large cap tech last week, this week’s earnings focus is on Palantir, AMD, Arista Networks, Super Micro Computers, Qualcomm, ARM Holdings, and more. The theme this week is on semiconductor earnings, with a few of the names listed above. AMD is of course at the top of the watchlist as they are the “baby Nvidia” that’s running artificial intelligence and data centers with their chips and products. Arista Networks is a key player in the data center space. And names like SMCI, QCOM, and ARM also play a vital role in the AI boom. We already saw how much Microsoft, Meta, and Amazon are spending on AI infrastructure last week, so there’s a good chance that the majority of these names will meet and exceed expectations. We'll be sending any key updates and trades on these names in our Hyper Stocks Pro group.
SPY Technical Analysis:
SPY reached a new record last week, touching 689.88 before pulling back, making that our main resistance in focus going forward. A move above that would be considered a “blue sky breakout” with a strong potential to reach for the 700.00+ mark for the first time in history.
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Disclaimer: This article is for informational and educational purposes only and does not constitute financial advice. Investing involves risk, including the possible loss of capital. Always conduct your own research or consult with a licensed financial advisor before making investment decisions.
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