Weekly Stock Market Update & SPY Technical Analysis
Markets tumbled lower last week as nerves around the election heightened, and an unexpected IT meltdown caused thousands of outages among different companies and industries. On the political end, markets are starting to weigh the chance of President Biden dropping from the race, which has been supported by top Democratic leaders. This, along with the assassination attempt on Trump, is causing strong turbulence in U.S. politics, which ultimately leaves markets uncertain. Both parties have their own agendas that bring about different implications for investors, markets, and taxes. As the odds of them winning shift back and forth, investors are likely to shift their sentiment along with those odds.
Last week’s IT outage sent a shockwave across markets and reminded the world of the vulnerabilities of relying on a few big tech firms to “run” our connectivity. Although it wasn’t a cyberattack, the outage was still a warning signal that single-point failures are possible, and at any point, many businesses could be stopped in their tracks if it occurs. CrowdStrike and Microsoft took the fall for the outages and reinforced their stance to amend the situation, but markets are likely to take a slower approach to earning their trust back.
This week’s focus will be on earnings from names such as Tesla, Alphabet (Google), IBM, Coca-Cola, and many more. Investors were hopeful that earnings from Netflix and TSMC would help markets recover last week; however, despite the companies’ outstanding numbers, markets still headed lower to end the week. With so many companies already trading near their all-time highs, it’s clear that just beating earnings is not enough; investors are looking for significantly stronger guidance to justify the current highs.
Also on the agenda this week are PCE and GDP reports, both of which are key economic indicators that will be used by the Fed to adjust interest rates. The Personal Consumption Expenditures Price Index (PCE), which is the Fed’s preferred inflation gauge, is expected to improve from 2.6% to 2.5%, a small change but one that could help reinforce the odds of an interest rate cut by September. The improvement in the inflation data is likely due to a more cautious consumer, but this also impacts the GDP. Last quarter’s GDP fell to +1.4% compared to the previous quarter of +3.4%. The number is expected to improve to +1.9% in this quarter’s reading, but that figure is still on the lower end.
SPY Technical Analysis:
Chart done on an hourly timeframe. Although the general trend is still bullish on the macro charts, the short term is filled with uncertainty. This has caused a spike in volatility, leading the VIX index to its highest level since April. SPY, in particular, broke and closed below its 10 and 20-day moving averages last week (not shown above), levels that have acted as support to the rally for months. This leaves it at risk of falling to the next supports around the 540.00 mark.