Equities report: Equity traders remain spooked

US stock markets appear to be uncertain as to which direction they should go, with prices slightly lower than last week’s closing price. It could appear that fear and concerns are slowly slipping through the cracks and making their way into the equities market.  In this report we aim to present the recent fundamental and economic news releases that impacted the US stock markets, look ahead at the upcoming events that could affect their performance and conclude with a technical analysis.

US stock markets shaken following candid revelations by JPMorgan

Equity traders’ confidence in the US stock market appear to have been rattled following JPMorgan Chase CEO Jamie Dimon’s letter to investors yesterday, in which he stated, “as I write this letter, the current crisis is not yet over, and even when it is behind us, there will be repercussions from it for years to come.” Further fueling the hunt by US lawmakers to maintain their siege of the Federal Reserve, CEO Jamie Dimon continued by claiming that the Fed stress-testing system was inadequate and never incorporated interest rates at higher levels. As such an image of incompetence and amateurism painted by JPMorgan Chase CEO Dimon, may have eroded confidence in the US equities market, with such a bold statement potentially providing additional pressure on US lawmakers to hold the Fed accountable for the mini-banking crisis. Thus, US stock markets could potentially suffer as a result of for possible future instability surrounding the biggest central bank, which may weaken confidence in the US equities market, leading to outflows into more ‘safer’ assets.

US market data signals a rather grim outlook

Equity markets received a little jolt following the release of the US PMI Manufacturing data which came lower than expected on Monday, followed by the substantial reduction in the JOLTS job openings for the month of February. Recent data suggest that the US might be nearing a stage of economic downturn as the last time the JOLTS data was this low was in June 2021 during the covid pandemic. As such equity traders may be concerned that the ADP Non-farm payrolls and ISM Non-Manufacturing reports today may further reflect economic downturn as economic sentiment appears to be deteriorating. In addition, the ADP report today, may provide some insight into Friday’s Non-Farm Payrolls data, as such the anticipation of a reduction may be priced in beforehand should the ADP Non-Farm Payrolls reflect a reduction in employment. Furthermore, the statement made by Fed Governor Cook on Friday, in which she stated “I am closely watching developments in the banking sector, which have the potential to tighten credit conditions and counteract some of that momentum”, may imply that the Fed is hoping that tighter monetary conditions and harsher credit scoring practices by banks would help in their fight against inflation, as spending by consumers may impacted by the absence of “free credit” that banks and corporations enjoyed over the past decade, now that interest rates have risen significantly. As such firms may have to cut costs and scrap growth plans as access to capital is now much more difficult and could therefore translate into weakness in the equities market.

Has reducing the workforce to boost share prices become the new norm?

Walmart, McDonalds and Apple announced this week that they would be reducing their workforce count, as inflation worries tighten the noose around companies’ neck.  The announcement of layoffs by the three behemoths, follows suit by actions taken by their counterparts Disney, Meta, Amazon and others, as their stock prices had taken a beating following fears of a recession, therefore a reduction in workforce may have been seen a logical solution to the problem.  By reducing their workforce Apple, McDonalds and Walmart will be able reduce their overhead costs, leading to an increase in profit margins, thus translating into higher stock prices as they may offer this increased revenue to shareholders through dividends or stock buybacks. Furthermore, the jobs cuts may be seen as a precautionary measure by the aforementioned firms, to ensure a healthier balance sheet in the event of economic downturn. In return, this may have provided temporary support for the equities market as stocks become more appealing in the eyes of investors, thus facilitating inflows into the market and spark risk off behavior.

기술적 분석

#MCD Daily Chart

Support: 278.25 (S1), 270.05 (S2), 261.10 (S3)

Resistance: 283.45 (R1), 290.00 (R2), 298.00 (R3)

Looking at #MCD Daily chart we observe investors react favorably to the employee reduction announcement, flooding the stock with calls, pushing the stock’s price to all-time highs. We hold a bullish outlook bias for McDonalds, given the formation of an upwards trendline since the 10  of March and today’s fresh all-time high level. Supporting our case is the RSI indicator below our daily chart which currently stands at 70, indicating a strong bullish sentiment surrounding the the golden arches. Furthermore, the RSI indicator staying at 70 may signal that the bulls are eager and are actively trying to push prices higher ground. Should the bulls extend their reign, we may see the break above the 283.45 (R1) resistance level and the move towards the 290.00 (R2) resistance barrier. For a bearish outlook we would like to see a clear break below the 278.25 (S1) support level with the next possible target for the bears being the 270.05(S2) support base.

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