Inflation concerns are rising. SP500 outlook

SP500 bulls remain optimistic about the post-pandemic prospects for the economy as 1 out of 10 Americans is now fully vaccinated, 2 out of 10 Americans have at least one shot, and by this weekend +65% of all Americans 65 or older will at least have one dose of the vaccine in their body. Toss on top, President Biden signing the $1.9 “American Rescue Plan” which paves the way for more stimulus to begin hitting bank accounts as early as this week, bulls see a recipe for economic growth that may exceed +6% this year. Bears of course believe the massive cash injection teamed with improved employment will overheat the economy and unleash much higher inflation.

Fundamental Analysis

Keep in mind, China earlier last week reported seeing much higher inflation year-on-year. With China considered the “supplier to the world,” many bears and other inflation hawks argue that Chinese manufacturers will hike prices and essentially export inflation to the rest of the globe. Some believe that is already being reflected in recent U.S. PPI gains and that those higher costs will eventually be passed on to consumers, adding to inflationary concerns. The main thing boosting China’s producer prices is the rising cost of commodities, particularly industrial metals, oil, and food.

Bulls are quick to point out that these price gains are growing from an exceptionally low starting base and that higher prices for select goods do not automatically equate to widespread inflation. The inflation concerns along with the rising yields on some longer-term debt have investors a little jittery about this week’s Federal Reserve policy meeting on Tuesday and Wednesday, March 16-17.

Fed Chair Jerome Powell will deliver a press conference on Wednesday following the central bank’s policy statement release, which is not expected to bring any major changes to the Fed’s benchmark interest rate. However, Wall Street is keen to hear the Fed’s plans for keeping both inflation and bond-yields in line.

News and data

This week will also see the pace of economic data pick up with Empire State Manufacturing on Monday; Retail Sales, Import/Export Prices, Industrial Production, and the NAHB Housing Market Index on Tuesday; Housing Starts and Permits on Wednesday; and the Philadelphia Fed Index on Friday.

Earnings this week will be on the lighter side but there are some big names on the schedule, including Coupa Software and Crowdstrike on Tuesday; Cintas, Five Below, Lordstown Motors, and Williams Sonoma on Wednesday; and Accenture, Dollar General, FedEx, Luminar, Petco Health, Nike, and Weibo on Thursday. Next week will also bring a fresh round of economic data from China and the European Central Bank’s Bank of Japan’s latest policy decision. Let’s also not forget, U.S. and Chinese officials will be meeting in Alaska.

SP500 technical analysis

The stock market has pulled back on Friday but has found support near the 3900 level. Advance Decline Line showed strength. With that in mind, it looks like the price is trying to go to the upside and reach a psychological number of 4000.  I believe we can see significant profit booking at mentioned zone. Also, 50MA on the daily chart offered support multiple times. So, if we will see its retest this week and it holds, we can consider going long.

To summarize, we don’t have a swing sell signal. I continue to trade SP500 both sides and possibly will engage in swing longs this week depending on price action.

Inflation concerns are rising. SP500 outlook by Inna Rosputnia

Wishing you a great week!