Stock investors are treading lightly following the recent wild ride in cryptocurrency markets that many believe is fueling increased volatility across the board. Investors didn’t receive any new economic data yesterday but the underlying worries of building inflation and a potential slowdown in corporate growth remain at the forefront.

Fundamental analysis

Some of the current lofty growth outlooks are dependent on continued support from the U.S. Federal Reserve and other global central banks. Worries continue to percolate that those supports will need to be scaled back sooner than Wall Street has been anticipating due to the economic rebound that has been much stronger than expected.

Another big piece of the puzzle is consumer spending, which accounts for over two-thirds of the U.S. economy. Demand for services, which collapsed during the pandemic, is expected to skyrocket this summer as consumers make up for missed “experiences” but there is uncertainty as to how big that demand might be or how long it will last.

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Likewise, it’s unclear if demand will significantly fall for things that consumers embraced during the pandemic, such as delivery services, video games, sweat pants, etc. A lot of goods and services that are in demand right now are suffering from shortfalls of both raw materials and labor, so there is a threat that anticipated growth could fall flat.

Most Wall Street insiders expect the next few months will be a “transition” period that will probably generate a lot of noisy data as supply chain issues as labor shortages play out and consumer trends ease into a new state of “normal.” Consumer Confidence for May will be one of today’s big highlights with investors particularly interested in how higher prices might be impacting sentiment.

In the University of Michigan’s preliminary May consumer sentiment survey, the headline index tumbled to 82.8 from 88.3 in April, which the surveyors attributed mostly to higher inflation expectations. The worry is that consumers will begin tightening their belts in anticipation of higher prices ahead, which could in turn weigh on economic growth or possibly work to derail the recovery. Also due today is the Richmond Fed Manufacturing Index which will provide an additional look at inflationary pressures threatening the manufacturing sector.

Adding to the “prices are higher” theme today will also be the Case-Shiller Home Price Index, the FHFA House Price Index, and New Home Sales for April.  On the earnings front, highlights include AutoZone, Cracker Barrel, Intuit, Nordstrom, Red Robin, Toll Brothers, and Urban Outfitters.

Technical analysis

ES 25 may 2021 forecast

SP500 is in a neutral zone today. The range is 4164.75 – 4229.5. Middle-strength zone within this range – 4197, weak levels 4180.75 and 4213.25. Holding above 4229.5 will bring the price to 4245.75 (weak level) and 4262 in extension (middle-strength level). If the price breaks below 4164.75 (seems unlikely to happen based on price action), look for 4148.50 (weak level) and 4132.5. 

Note, mentioned levels should offer support/resistance before you enter the trade. Don’t trade without price action confirmation! Additionally use daily cycles to guide you.

SP500 Traders Track Consumer Spending Dynamic by Inna Rosputnia

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