Thursday, July 7 2022

Traders working on the floor of the NYSE, February 16, 2022.

Source: NYSE

The stock market faces another choppy week as investors monitor the situation in Ukraine and continue to adjust their portfolios ahead of interest rate hikes from the Federal Reserve.

Stocks have been rocked back and forth over the past week, with the Dow Jones Industrial Average having its worst day of the year on Thursday. All three major averages were lower for the week with the Dow Jones down 1.9%, the Nasdaq down 1.7% and the S&P 500 down 1.6%. Energy, Communication Services and Financials were the worst performing sectors for the week.

A few Fed speakers are on the schedule in the coming four-day week, including Cleveland Fed Chair Loretta Mester and Fed Governor Christopher Waller on Thursday. Earnings continue to roll, including reports from retailers Macy’s and Home Depot. There are also a number of economic reports, including durable goods, consumer spending, and inflation data.

“Perhaps the biggest problem [for the market] next week is technical,” said Jim Paulsen, chief investment strategist at The Leuthold Group.

The market continued to fluctuate with developments surrounding Russia’s threat to invade Ukraine and its troop buildup along the Ukrainian border.

“The problem with Russia is what is the end game? It could go on forever… When you look to the future what will change is if they come in or if there is a withdrawal total, and what’s going to bring a withdrawal anytime soon,” Paulsen said.

He said stocks looked set to rise before Russia’s threat to Ukraine began to weigh on the market. About two weeks ago, the S&P 500 tried to recover 4,600 after hitting a low of 4,222 on January 24.

“He was doing this despite all the Fed stuff and inflation. The market was okay with that. Russia knocked it all down. Now you’re in a situation where if we break low enough we have to break this lower,” Paulsen said.

On Friday, Russia prepared to carry out more exercises near the Ukrainian border, while the United States continued to press for a diplomatic solution.

“As an investor, that leaves you hanging, and technically you have to wonder if we’re going to go down to test that low,” Paulsen said. “I don’t know for the next 60 days, but the next six months should be good.”

Chart analysis is not guaranteed to predict the trajectory of the market, but many investors look to key technical levels because many investors react to them and algorithms are programmed around them. They also become a guide when the fundamentals are very uncertain.

Look at the graphs

Scott Redler, strategic director of T3Live.com, monitors the technical aspects in the short term. He sees a good chance that the S&P 500 will revisit that January low in a retest. The S&P 500 ended Friday at 4,348.

“The narrative for this year is inflation and the Fed is removing accommodative measures. We might have a knee-jerk reaction to the Russian-Ukrainian situation,” Redler said. He said that even if the Russian threat subsides, the market could still face volatility as the Fed raises interest rates from March.

“It doesn’t solve the problem of four to seven rate hikes this year and balance sheet runoff,” he said, adding that the market has reacted negatively to Fed tightening in the past. “In 2018, the S&P fell 20% and the Nasdaq 24%. So why wouldn’t the S&P test the 4,222 area?

Redler and other technical analysts are seeing a bearish trend on the S&P 500 chart that would suggest the index may be forming a head and shoulders pattern, which could bring even more volatility.

“It’s a distribution pattern, which the market has been doing over the last month as it builds the right shoulder,” Redler said. He said the neckline on the chart wou

I would be around 4,220 to 4,280. “After it’s formed, you get lower prices if the neckline breaks.” In that case, he said the broad market index could fall to 3,900, he added.

Redler also monitors Big Tech stock charts. “Apple has been an island where it’s not acting special, but it’s not collapsing. If Apple starts breaking the 166 area, that would help drive the S&P down faster,” he said. declared. “Apple has been trying to hold the $165-$170 zone, which keeps it somewhat constructive. »

Microsoft shares are also holding up. “Apple and Microsoft are such a large percentage of the S&P and the Dow Jones. For the bears to really growl, they’re going to have to break them down, in addition to the high-growth names,” he said.

Flight to safety

In the bond market, investors weighed Federal Reserve rate hikes against fears of a Russian invasion of Ukraine. The 10-year Treasury yield was 1.93% on Friday. Yields move opposite the price. Investors see the 10-year as a safe haven against possible developments over the weekend in Ukraine.

A week earlier, the market worried that the Fed might be more aggressive with interest rate hikes, starting with a possible 50 basis point hike in March. But in the futures market, expectations of a half-point rate hike faded as the week progressed. The market was expecting a rise of around a quarter point on Friday.

St. Louis Fed President James Bullard had raised expectations for a bigger hike, and he reiterated that view Monday on CNBC’s “Squawk Box.”.” Then the minutes of the last Fed meeting were released on Wednesday. They were less hawkish than expected, with no indication that members of the Federal Open Market Committee were in favor of a bigger rate hike.

“I think from what we’ve heard in the minutes and everyone but Bullard, it doesn’t sound like anyone is really in favor of a 50 basis point hike,” said Ben Jeffery, equity strategist. rates at BMO Capital Markets.

When it comes to economic data for the week ahead, there are a few important reports, notably on durable goods and consumer sentiment on Friday.

Personal consumption expenditure data is also due on Friday. Investors will focus on the inflation reading in this report, which is closely watched by the Federal Reserve.

“We kind of have a pretty good guide that’s going to exceed expectations. This is probably the highlight of the week, data-wise,” said John Briggs of NatWest Markets.

boiling oil

The tense situation with Moscow has pushed oil prices higher on fears that any retaliatory sanctions from the United States will limit Russian oil in the market. West Texas Intermediate futures rose above $95 a barrel last week for the first time in seven years. But on Friday, the price retreated to around $91.

On Friday, the market reacted more to reports that the United States and Iran appeared close to an agreement on Friday to revive a nuclear agreement. If the deal is reinstated, Iran could release its crude oil to the world market.

“There are a lot of positive comments about it. There seems to be a conclusion in the market. It’s a marriage of convenience. The market needs barrels. The Biden administration needs barrels and the Iranians need money,” said John Kilduff. , partner of Again Capital.

Kilduff said traders were watching earnings reports from oil companies next week, the biggest being Occidental Petroleum. EOG Resources, NRG, Chesapeake Energy and Coterra Energy will also release results.

With the number of rigs on the rise in the United States, Kilduff said investors are watching to see if companies signal plans to increase drilling.

“What their investment plans will be is a hot topic of conversation,” he said.

Calendar for the coming week

Monday

Presidents Day

Closed markets

11:15 a.m. Fed Governor Michelle Bowman

Tuesday

Earnings: Home Depot, Macy’s, Toll Brothers, Caesars Entertainment, Public Storage, Agilent, Palo Alto Networks, Mosaic, Virgin Galactic, Texas Roadhouse, TrueCar, Anglogold Ashanti, KBR, Sealy, Cracker Barrel, Krispy Kreme, Fluor, Expeditors International, Medtronic, Norsk Hydro, HSBC

9:00 a.m. S&P/Case-Shiller home prices

9:00 a.m. FHFA Home Prices

9:45 a.m. Manufacturing PMI

9:45 a.m. PMI Services

10:00 a.m. Consumer confidence

3:00 p.m. Meredith Black, Interim President of the Dallas Fed

3:30 p.m. Raphael Bostic, Atlanta Fed President

Wednesday

Earnings: Booking Holdings, Barclays, eBay, Bausch Health, Brink’s, Travel + Leisure, Dana, Molson Coors Brewing, Sleep Number, IMAX, Tupperware, TJX Cos, Allbirds, Bath & Body Works, Petrobras, Lowe’s, Iamgold, Hertz Global, Extra Space Storage, Sturm Roger, Chesapeake, Coterra

Thursday

Earnings: Anheuser-Busch, Alibaba, Daimler, AXA, Moderna, WPP, Iron Mountain, Gannett, SeaWorld, Coinbase, Etsy, Morningstar, Dell Technologies, Beyond Meat, Ambac Financial, Cushman & Wakefield, Allscripts Healthcare, Keurig Dr Pepper, NetEase, NRG Energy, Planet Fitness, VMWare, Southwestern Energy, Steve Madden, Wayfair, American Tower, Discovery, Occidental Petroleum

8:30 a.m. First unemployment registrations

8:30 a.m. Q4 Real GDP 2nd reading

9:00 a.m. Tom Barkin, Richmond Fed President

10:00 a.m. Sales of new homes

11:00 a.m. San Francisco Fed Daly

11:10 a.m. Atlanta Fed Bostic

12:00 Barkin of the Richmond Fed

12:00 p.m. Cleveland Fed President Loretta Mester

3:30 p.m. Mary Daly, President of the San Francisco Fed

8:00 p.m. Fed Governor Christopher Waller

Friday

Earnings: Canadian Imperial Bank, Foot Locker, Sempra Energy, Liberty Broadband, Liberty Media, Cinemark

8:30 a.m. Durable goods

8:30 a.m. Personal income/expenses

8:30 a.m. PCE deflator

10:00 a.m. Door-to-door sales pending

10:00 a.m. Consumer Sentiment

Saturday

Earnings: Berkshire Hathaway

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