Investors could get a breather in the coming week from the vicious cycle of selling that has gripped the stock market since late March.
Stocks rebounded from Thursday’s lows and were poised to end the week with reduced losses after Friday’s rally. On Friday, buyers hunted for bargains among small-caps, biotech names, the Arkk Innovation ETF and other growth names that were hit the hardest.
The S&P 500 jumped back above the key 4,000 level on Friday, after hitting 3,858 on Thursday, close to the 3,800-3,850 area that chart analysts have been targeting for a bottom. But while it looks like the market could temporarily recover, market technicians say that area is likely to be retested later.
“Does that mean the lows for the year are here? Probably not, but it could create an oversold bounce to retest the 4,100 or 4,200 level in the S&P 500,” said Scott Redler of T3Live.com, which follows the market. short term. technical “In bull markets, you get weeks when you get in. In bear markets, you get oversold bounces.
Redler said he expects traders to try to sell the rally. On Friday, the Nasdaq was up 3.8% but down 2.8% for the week, and the Dow was up 1.5% but down 2.1% for the week. The S&P 500 finished Friday at 4,023, up 2.4% but down the same amount for the week.
“It has the ingredients for an oversold bounce that could last more than a week. I think this bounce will be led by all the oversold names that are down 70% to 80% from their highs,” he said. “It doesn’t mean you can buy blind. Not everything will be created equally on this bounce.”
Redler said the Fed not meeting for a few weeks could add some support to stocks. Markets have been nervous that the Fed is raising interest rates too quickly and stifling the economic recovery as it tries to quell soaring inflation.
In the week ahead, investors will continue to look for clues about the course of the central bank’s rate hike path in both economic reports and comments from Fed officials.
Fed Chairman Jerome Powell is scheduled to speak at a Wall Street Journal conference on Tuesday afternoon. For now, the market expects an interest rate hike of half a point at the June meeting and another in July, with possibly a third in September. The central bank raised its target fed funds rate by half a point this month, after a quarter-point hike in March.
Consumer health will be a major focus in the coming week. The economic calendar includes retail sales for April and also a look at the housing sector, with the National Association of Home Builders survey; both reports will be released on Tuesday, with housing starts on Wednesday and existing home sales on Thursday.
Walmart, Home Depot and Target are all set to report earnings next week, and these big chain stores could provide good insight into the impact of inflation on consumer spending and attitudes.
Almost a bear market
Perhaps the most telling thing for investors in the coming week will be how the stock market is trading after its effort to rally on Friday.
The S&P 500’s drop to 3,858.87 on Thursday sent the index down 19.55% from its intraday high, very close to the official 20% drop for a bear market.
The relentless rise in bond yields has also slowed, after the 10-year bond yield peaked last week at 3.2%. The 10-year bond was at 2.93% on Friday.
“I think the most encouraging thing for me is that the slide in rates has stopped. All year long, short-term yields have been driving 10-year yields higher,” said Jim Paulsen, chief investment strategist at Leuthold. Group. He noted that inflation expectations in the bond market have also receded, and easing pressure from the rate market could help stocks rally. Yields move against prices in the bond market.
Fairlead Strategies founder Katie Stockton said the slowdown in 10-year yield growth is significant. For the broader economy, the 10-year run from around 1.5% earlier in the year has already had an impact on housing, as home mortgages are influenced by it.
In the case of stocks, technology and growth names have been hit harder by higher Treasury yields. That’s because higher rates make money more expensive, and cheap money is the fuel for highly valued stocks.
“I think 10-year yields are just going to plateau here,” Stockton said, noting that his opinion is based solely on chart analysis. “Such a steep uptrend is unsustainable… We think there will be a consolidation in Treasury yields and the dollar.” She said support for the 10yr is at 2.55% and resistance on the upside is at 3.25%.
Paulsen noted that there has been a lot of speculation on big flyers and large-cap technology. “Look at FANG stock going from 14% of market capitalization to 9%. A lot of the tech bleeding is already done,” he said.
Investors were also keeping an eye on Apple last week after it broke support at $150. The stock has outsized market clout as it is the largest US company by market capitalization and is part of the Dow, S&P 500 and Nasdaq.
Apple shares fell just below Stockton’s target of $139 on Thursday, but recovered on Friday to close at $147.11 a share.
Stockton said his chart analysis indicates the market could see about two weeks of stabilization, either with a bounce or sideways move. “It’s not a buy signal. I don’t recommend that people buy.”
There could be an oversold bounce, “and we generally plan to use that oversold bounce to reduce exposure,” he said.
His S&P 500 downside target had been 3,815, which he said is still up for grabs. “We have to assume that it will be a new test,” Stockton said. “The retest has a higher chance of producing a breakdown because the momentum is still to the downside.”
week ahead schedule
Profits: Warby Parker, Take-Two Interactive, Tencent Music, Ryanair, Weber
8:30 a.m. Empire State Manufacturing
8:55 a.m. New York Fed President John Williams
16:00 ICT data
Profits: Walmart, Home Depot, Vodafone, JD.com
8:00 a.m. St. Louis Fed President James Bullard
8:30 a.m. Retail Sales
8:30 am Business Inventories
9:15 a.m. Philadelphia Fed President Patrick Harker
9:15 a.m. Industrial production
10:00 am Commercial inventories
10:00 a.m. NAHB Poll
2:00 pm Fed Chairman Jerome Powell at a conference sponsored by The Wall Street Journal
2:30 p.m. Loretta Mester, President of the Cleveland Fed
6:45 p.m. Chicago Fed President Charles Evans
Profits: Target, Cisco Systems, Lowe’s, TJX, Burberry, Tencent Holdings, Analog Devices, Shoe Carnival, Bath and Body Works, Synopsys
8:30 a.m. Start of housing
8:30 a.m. Building permits
4:00 p.m. Philadelphia Fed Harker
Profits: BJ’s Wholesale, Applied Materials, Deckers Outdoor, Ross Stores, Palo Alto Networks, VF Corp, Eagle Materials, Kohl’s, Grab Holdings, Vipshop
8:30 a.m. Initial Claims
8:30 a.m. Philadelphia Fed Manufacturing
10:00 am Existing Home Sales
10:00 am Index advance
4:00 p.m. Philadelphia Fed Harker
Profits: Deere, Foot Locker, Booz Allen Hamilton