Equities report: US equity bears seem to hesitate

US equity markets seem to remain relatively undecisive about their direction. In todays’ report we are to discuss the fundamentals surrounding US equities markets, the Fed’s interest rate decision later today and have a look at the takeover of WIZ by Alphabet. We are to conclude the report with a technical analysis of Nasdaq’s daily chart for a rounder view.

The fundamentals continue to weigh on equities

Uncertainty continues to be spread across markets and particularly the equities markets. The uncertainty for the US economic outlook seems to be the primary factor behind the weakening of US equities. It’s characteristic that the Atlanta Fed GDP rate for Q1 25, has improved reaching a -1.8% yet remains obviously in contractionary territory. In addition to growth we also note an easing US employment market and inflation that could have a negative effect on revenue figures of the corporate world. Overall should market worries for the US economic outlook intensify we may see US equites weakening further. Yet market worries about growth tend to expand also beyond the US, on a global level, as the US-led trade wars seem to widen and intensify. We note that OECD has slashed its forecasts for growth in the economies of Canada and Mexico, which are primarily being affected by US President Trump’s tariffs. We also note the tariffs imposed on European products entering the US and expect the issue to widen and intensify further as the EU is reported to intensify its crackdown on US big tech companies such as Apple, Meta and Google. Overall EU regulations were always an irritating factor for US businesses and the US Government, especially US President Trump seems ready to impose additional tariffs as a response. But the US tariffs are expected to have an internal effect in the US economy as it may raise prices further, practically causing US consumers to struggle. In general any further indication of escalating tensions in international trade, could intensify the market worries thus weighing further on US equities.

The Fed’s forward guidance could go either way

On a monetary level, we highlight the Fed’s interest rate decision later today as a key factor behind US stock markets’ direction. The market expects widely the bank to keep rates unchanged today, yet at the same also seems to be pricing two rate cuts to come until the end of the year, with the one being in June and the second in September, as per Fed Fund Futures (FFF). Overall today we tend to see the case for the bank to remain on hold and consider the bank’s forward guidance as the main issue. The bank on a fundamental level seems to find itself between a hammer and an anvil, as one the one hand the easing inflation and US employment market could allow for the bank to expedite any rate cuts, yet on the flip side, Trump’s policies, especially the tariffs on products entering the US and his immigration policies, could have in inflationary effect on the US economy, advising caution with any further rate cuts. We split the bank’s forward guidance into four elements with the first being the accompanying statement and should a more hawkish tone be adopted by the bank we may see it weighing on US equities, as it would imply tighter financial conditions for longer in the US economy. Also we note the release of the Fed’s new dot plot and should Fed policymakers suggest that they expect rates to remain higher than what the market expects by the end of the year, we may see it having a bearish effect on US stockmarkets. Thirdly we would note the banks’ macroeconomic projections and more optimistic outlook by the bank for growth and a faster easing inflation could support US stockmarkets. Lastly, Fed Chairman Powell’s press conference, half an hour after the release could extend volatility for US stockmarkets. The Fed Chairman is well known to be able to reverse the market’s initial reaction in his press conferences. Should the Fed Chairman sound hawkish enough, US stockmarkets could weaken further.

Alphabet’s intentions to take over Wiz could support its share price

Google’s owner Alphabet is to buy Wiz a cybersecurity company for a staggering $32 billion. If the transaction actually takes place its to be the most expensive acquisition by Alphabet. It’s characteristic that Alphabet had proposed a bid of $23 billion in the summer which was rejected by Wiz. Wiz is a US-Israeli cyber security company, founded in 2020. It’s addition is expected to compliment Alphabet’s cloud business segment and strengthen it further. The addition as per comments of Alphabet’s CEO Pichai will turbocharge improved cloud security and the ability to use multiple clouds. Overall, despite the acquisition being quite pricey, we expect it to provide halt the tumbling of Google’s share price, maybe even provide some support.

Technical Analysis

US100 Daily Chart

• Support: 19120 (S1), 18310 (S2), 17255 (S3)
• Resistance: 19910 (R1), 20535 (R2), 21250 (R3)

Nasdaq hit a ceiling at the 19910 (R1) resistance line on Monday and corrected lower yesterday. The movement practically brought the price action of the index to the same levels it was at our last report. Given that the downward motion has been interrupted and no upward motion has emerged, hence we tend to maintain a bias for a sideways motion of the index for the time being. Yet please note that the RSI indicator remains near the reading of 30 implying a bearish predisposition of the market for Nasdaq and the index’s price action is quite higher than the lower Bollinger band implying that there is some room for the bears to play, should they wish to. Hence we adopt a sideways motion bias and warn about any possible bearish tendencies. Should the bears actually renew their dominance over the index, we may see Nasdaq’s price action breaking the 19120 (S1) support line and start aiming for the 18310 (S2) support level. On the flip side, a bullish outlook seems remote yet the index’s stabilisation makes it possible and should the bulls start leading the price action of Nasdaq, we may see it breaking the 19910 (R1) resistance line and start aiming for the 20535 (R2) resistance level.

If you have any general queries or comments relating to this article please send an email directly to our Research team at research_team@ironfx.com

Disclaimer:
This information is not considered as investment advice or an investment recommendation, but instead a marketing communication. IronFX is not responsible for any data or information provided by third parties referenced, or hyperlinked, in this communication.

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