The Hot List
1. Inflation
The Fed’s preferred inflation gauge – the PCE report – increased 0.3% from the previous month, as expected.
2. Federal Reserve
The FOMC will meet this week for a rate decision on Wednesday.
3. Earnings
Alphabet, Microsoft came through with nice beats on earnings. Apple and Amazon will headline another big earnings week ahead.
4. Employment
The April jobs report will be released on Friday.
5. Economy
The first estimate of the 1Q GDP report showed the economy grew by 1.6%, which was below the expectations of 2.4%.
Last Week
Monday: S&P 500 +43.37 (+0.87%) to 5010.60. No economic releases.
Tuesday: S&P 500 +59.95 (+1.20%) to 5070.55. March new home sales 693K (vs. 670K expected).
Wednesday: S&P 500 +1.08 (+0.02%) to 5071.63. March durable goods orders 2.6% (vs. 1.8% expected).
Thursday: S&P 500 -23.21(-0.46%) to 5048.42. Initial jobless claims 207K (vs. 215K expected).
Friday: S&P 500 +51.54 (+1.02%) to 5099.96. March PCE +0.3% (vs +0.3% expected). Core PCE +0.3% (vs. +0.3% expected).
S&P 500 [S&P] Technical Look
Potential Support: To the downside, look for support at the key 5000 level. If it drops below that, look for additional support at recent lows around 4960.
Potential Resistance: To the upside, watch for resistance just higher at the 20 and 50-day moving averages. If it breaks above those levels, it could make a run at the all-time highs near 5200.
Bright Ideas
Large Cap Growth
Small and Mid-Cap Value
Materials
Healthcare
Semiconductors
My Take
Right on time, the bounce we were hoping for showed up. The S&P jumped almost 3% after earnings and decent inflation data.
Microsoft and Alphabet really gave stocks a boost after blowout numbers, with Alphabet announcing a dividend and huge buyback.
Friday’s PCE report showed that inflation continues to be stickier than expected but on the bright side it didn’t appear to have any signs of reflation.
It should give Powell a little flexibility to maintain his wait and see approach. However, with the stickier inflation it seems obvious that we’re likely to hear a lot more “higher for longer.”
While it does appear that the Fed has successfully normalized interest rates, but now I wonder if high rates may be actually be exacerbating the problem. For those that have locked in rates or don’t have debt, raising rates is likely giving them more spending power.
Regardless we need to watch the 10-year Treasury yield which is approaching 5% again. This is where it has historically been trouble for stocks. The 30-year mortgage is back over 7% as mortgage applications continue to decline.
From a technical standpoint, the “oversold” RSI of 30 on the S&P proved again to be a launching spot for a bounce. Now the tough task will be getting back above both the 20 and 50-day moving averages just higher from where we are now.
Continue to watch earnings to see which way this rally is likely to go. The jobs report Friday and the current geopolitical situations remain wild cards.
In the meantime, I’d stick with your current gameplan favoring large caps and less interest rate and inflation-sensitive areas.
If you have any questions or need help, please contact me today.
Until next time,
Clint Kirby
Chief Financial Strategist
Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.