For the first time in 6 weeks, the S&P 500 (SPX) closed lower on a weekly basis. The benchmark U.S. stock market index fell 1.4% last week after previously hitting the highest levels since April 2022.
The bulls tested and failed at 4400, a zone that hosts an important resistance in the context of an ascending trend line that connects the two prior peaks (Nov 2022 and Jan 2023).
Dow Jones Industrial Average (DJI) fell almost 1.7% as the index approaches the 100 weekly moving average. Similarly, Nasdaq Composite Index (IXIC) closed nearly 1.5% lower, marking the first weekly decline since April.
Looking forward to this week, the key economic data releases include the durable goods report on Tuesday and the Chicago PMI report on Friday. On the Fed front, Chairman Powell is due to speak on Wednesday and Thursday.
Focus Shifts to Q2 Earnings
Fed Chair Powell said in his semi-annual testimony to Congress that he expects interest rates to continue moving higher while saying that two more rate hikes is “a pretty good guess”. Powell also reaffirmed the Fed’s commitment to its 2% target for inflation.
The markets could get more volatile as we head into the second part of the week given quarter-end rebalancing trades. On the earnings front, Carnival (NYSE:CCL), Walgreens Boots Alliance (NASDAQ:WBA), General Mills (NYSE:GIS), Micron (NASDAQ:MU), Nike (NYSE:NKE), and Constellation Brands (NYSE:STZ) are due to report this week.
Looking forward to the Q2 earnings season, the estimated earnings decline for the S&P 500 is -6.5%, according to Factset. This is worse than the expected decline of -4.7%, expected on March 31.
What analysts are saying about U.S. stocks
Goldman Sachs analysts: “The indicators we track suggest the bullish rotation has mostly been driven by sentiment and fast money, which makes it more vulnerable to disappointments. That said, should macro data be supportive, given light positioning via fund flows, we see room for investors to rotate further towards risky assets.”
Roth MKM analysts: “With the S&P 500 stretched from trend and overbought, we believe the near-term tactical call is for a pullback to 4300/4200… Equity markets have clear momentum and history suggests momentum over the first half of the year typically carries over into the second half of the year.”
Wells Fargo analysts: “Concentration risks are exceptional, a longer-term concern for uber caps. Today's Russell rebalance should be a material liquidity event and catalyst for a near-term pullback as acute liquidity demands for active and passive investors are satisfied.”
JPMorgan analysts: “With a light catalyst calendar and the buyback bid beginning to decline due to companies entering their earnings blackout periods, how much farther are stocks likely to fall? A 5% pullback from the June 15th 52-week high would mean 4,202 in the SPX. A 10% correction would put that index at 3983 and the start of a new bear market (down 20%) would equate to 3,541 in the SPX.”
Oppenheimer analysts: “This was the sixth time since 2013 that at least a $19B inflow developed following net-redemptions over the prior 13 weeks: November 2016, June 2017, March 2018, November 2020, February 2021. Rather than a concern, we see this as an inflection toward improving fund flows that should support additional equity market gains over the coming months.”