Equities report: Are Bulls still in control?

We note that Dow Jones and Nasdaq, seem to have hit a ceiling in the past week, while the S&P 500 which also has a broader base as an index, seems to continue to be on the rise. In the current report, we aim to shed light on the fundamentals for US equity markets as a whole, but also particular issues for specific high-profile companies or sectors and for a rounder view end the report with a technical analysis of the S&P 500.   

US inflation and the Fed

The release of the US CPI rates for February may have taken the markets by surprise as the headline rate unexpectedly ticked up, while the core rate slowed down less than expected, both on a year-on-year level. The release highlighted the persistence of inflationary pressures in the US economy for the past month and may harden the stance of the Fed to maintain high rates for longer. We also note that the market’s expectations for the Fed’s stance have altered, as the market before the release was expecting the bank to deliver four rate cuts, starting from June onwards, yet currently, only three rate cuts are expected. We note that US stock markets shook off the effect of the release and were able to end the day in the greens. The importance of the market’s reaction also lies on the fact that it highlights the optimism of market participants, which could provide additional support for US equities. Next possible test for US stock markets could be the release of the US PPI rates and retail sales growth rates both for February on Thursday.  Next week we highlight the release of the Fed’s interest rate decision as the main event for US stock markets on a fundamental level.

Boeing’s problems pile up

With the turbulence about quality issues in Boeing (#BA) still being ongoing, the company’s share price dived around 10% over the past three days, reaching as low as $183 per share. Investor confidence towards the outlook of the company seems to have been shaken considerably. In a newer insistence, a Boeing 777-200 lost one of its tires during a take-off from San Francisco on Thursday, while flights reported “technical issues” on Monday, injuring passengers and diverting flights. At the same time, conspiracy theorists doubt strongly whether the odd death of Boeing whistleblower Barnet was from self-inflicted wounds. Barnet was found dead on Saturday the 9    of the month. Barnet was providing evidence for a case against Boeing. Despite the company promising changes after getting a government audit that revealed substantial weaknesses in production quality, the reversal of the negative outlook of the company may prove to be difficult in the coming months. The only reason the company has not closed yet, may prove to be the lack of substantial competition given that Airbus’s (main rival) production capacity is full as are its order books. Overall the tendency for the time being is for Airbus to get support while on the flip side, Boeing’s share price sinks.

EU’s AI regulation

We highlight the news today that EU lawmakers in the European Parliament today (13 March) approved the AI Act, rules aimed at regulating AI systems according to a risk-based approach, as Euronews has reported. Under the AI Act, machine learning systems will be divided into four main categories according to the potential risk they pose to society. The systems that are considered high-risk will be subject to stringent rules that will apply before they enter the EU market. The restrictions are expected to come into force by May this year and are definitely bad news for AI driven companies, including tech giants such as Microsoft (#MSFT), Alphabet (#GOOG), Amazon (#AMZN), Meta (#FB) and Apple (#APPL). We would especially highlight Microsoft, given its recent expansion in Europe through the partnership with French start-up Mistral AI. We remind our readers that in the last equity report for February we had highlighted the intentions of the EU to examine the partnership. Overall the new act is setting limitations on AI in Europe and is expected to be the precursor for similar legislation to follow in other countries and thus could weigh on the share prices of companies like the ones aforementioned.

技术分析

#US500 Cash Daily Chart

Support: 5100 (S1), 4975 (S2), 4840 (S3)

Resistance: 5250 (R1), 5400 (R2), 5550 (R3)

S&P 500 continued to rise since our last report placing some distance between the index’s price action and the 5100 (S1) support line, which by the way provided support for the price action. We tend to maintain our bullish outlook as the upward trendline guiding the index since late October last year, remains intact and continues to support the upward movement. At the same time, we note that the RSI indicator remains just below the reading of 70, implying that the bullish sentiment in the market for the index remains present. Also, the 20 moving average (MA), the median of the Bollinger bands, the 100 MA (green line) and the 200 MA (Orange line) are all pointing upwards highlighting the upward trajectory of the index. On the other hand, the price action is flirting with the upper Bollinger band, which in turn may slow down the bulls somewhat. Furthermore, please note that the index remains near record-high levels and is about to enter uncharted waters once again, which may cause the bulls to hesitate. Should buyers maintain control over the index, we set the next target for the bulls at the 5250 (R1) resistance line while even higher we note the 5400 (R2) resistance line. On the flip side should the bears find a chance and take over, we may see the index dropping, breaking the prementioned upward trendline in a first signal that the upward movement has been interrupted, breaking the 5100 (S1) support line that was a prior record high level yet turned into support as the price action moved above it. Next possible target for the bears should the S1 be broken, could be the 4975 (S2) support base.      

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