Equities report: Is the Honeymoon phase over for US stock markets?

There seems to be an element of hesitation among stock market participants for US equities markets to continue their advance higher, with all three major indexes moving lower since the beginning of the week. In this report, we are to discuss the effect of the release of January’s US employment report, the Fed’s decision and intentions as well as upcoming releases and earnings reports expected in the coming days and for a rounder view conclude with a technical analysis of the US30.  

US CPI rates cast doubt on rapid rate cuts by the Fed

It appears that the main market mover for the current week may have been the release of the US CPI rates for January. The release seems to have placed a dent in the market’s optimistic view of easing inflationary pressures. In particular, the headline CPI rates, and Core CPI rates exceeded expectations, by coming in at 3.1% and 0.4% on a year-on-year basis respectively. Both rates tended to validate our concerns that the market’s expectations of the Fed rapidly easing on its monetary policy agenda, may have been overoptimistic and perhaps overambitious at the beginning of this year. As such, following the release, market participants at the time of this report, are now expecting 4 rate cuts by the Fed instead of 6, with the first-rate cut now expected to occur in June rather than May. Following the release of the CPI rates, the dollar appears to have strengthened, which may have weighed on the US stock markets. The expectations, of interest rates remaining higher for longer, could lead to tighter financial conditions in the US economy, which could disincentivize consumer spending. Therefore, lower consumer spending could result in a decrease in revenue for companies, which in the long run, might weigh on their stock prices due to lower profitability margins. In conclusion, with the Fed’s hawkish arguments now seemingly vindicated, it could lead to the Fed amplifying its hawkish rhetoric for keeping rates higher for longer, thus leading to a further repositioning of the US stock markets to lower ground. We tend to maintain our view, that the bank may start cutting rates in the summer and deliver 3 rate cuts in the current year.

Upcoming financial releases from the US

We expect financial releases to potentially impact the US stock markets in the next few days given that some US high-impact financial releases are expected to be released, with special focus being placed on the US retail sales rate for January. Yet we would note the release of the US Philly Fed Business Index figure for February on Thursday and the University of Michigan Preliminary Consumer Confidence figure for February on Friday.

Upcoming earnings releases

The earnings season is still on and headlines about earnings and revenue of various companies are still exciting traders, with the consumer staples sector set to take the main stage next week. We make a start with HomeDepot (#HD) and Walmart (#WMT) on Tuesday with Nvidia (#NVIDIA) and eBay (#EBAY) expected to release their earnings on Wednesday. For this week’s earnings, we highlight Coca-Cola (#KO) who beat analysts’ revenue expectations by coming at $10.95B, exceeding the expected figure by roughly $296.97M. As such, despite, missing its earnings per share expectation by coming in by $0.46, the company’s stock price may find some support.

技术分析

US30Cash Daily Chart

Support: 38040 (S1), 37090 (S2), 36020 (S3)

Resistance: 38810 (R1), 39745 (R2), 40630 (R3)

The Dow Jones 30 appears to be ending its 5-week winning streak, as it is currently in the reds. Yet remains near it’s all-time high figure. We maintain a bearish outlook for the index on a fundamental level, in addition to the breaking of our upwards moving trendline that was incepted on the 18    of January, as a signal that the current uptrend may be nearing its end. Yet, we must note that the RSI indicator below our daily chart currently registering a figure of 56, implying a slight bullish market sentiment in the market. Nevertheless, for our bearish outlook to continue, we would like to see a clear break below the 38040 (S1) support level, with the next possible target for the bears being the 37090 (S2) support base. On the other hand, for a bullish outlook, we would like to see a clear break above the 38810 (R1) resistance line with the next possible target for the bulls being the 39745 (R2) resistance ceiling. Lastly, for a sideways bias we would like to see the index remain confined between the 38040 (S1) support level and the 38810 (R1) resistance level.

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