Stocks Continue To Chop Around Just Below All-time Highs

Stocks continue to chop around just below all-time highs. Big money players still seem a bit uncertain in regard to betting more money on the reopening and stronger demand or taking some bets off the table fearing higher inflation, companies struggling to find good help, and supply chain shortages that could make meeting stronger demand next to impossible.

Fundamental analysis

Earnings season is nearly wrapped up with over 95% of S&P 500 companies having reported. Key releases today include American Eagle, Dick’s Sporting Goods, Nvidia, Snowflake, and Williams Sonoma. Average S&P 500 earnings growth for Q1 is now over +51%. Average earnings growth estimates for Q2 are around +50%. This means there’s not much room for error at current valuations.

As I mentioned above, some believe those lofty expectations could face headwinds from labor shortages, higher inflation, supply chain dislocations and/or reduced support from the Fed.

Federal Reserve Vice Chair Richard Clarida was among several other Fed officials yesterday that pushed back against worries of runaway inflation. Clarida did admit that the latest CPI read was “a very unpleasant surprise” but he mostly echoed the Fed’s official stance that current inflationary trends will be “transitory.” He also acknowledges the “risk case” that inflationary pressures could end up being more persistent than expected but said the Fed has the tools necessary to “offset” that if necessary.

Most Fed officials have publicly echoed similar sentiments, although Philadelphia Fed President Patrick Harker and Dallas Fed President Robert Kaplan have both indicated they think it is appropriate to begin talking about “scaling back” the Fed’s asset purchases. With so much uncertainty surrounding the central bank’s next move, bulls may be unwilling to add more risk ahead of the Fed’s upcoming meeting on June 15-16. In the meantime, investors will continue mining Fed comments and economic data for clues.

There was quite a bit of data to unpack yesterday but the overall theme was “higher prices” with housing data dominating. Home prices continued to accelerate in April with the median price for a new home sold climbing more than +11% to $372,400, while the average sale price hit a new record high of $435,400, up +8.7% from March. At the same time, New Home Sales fell nearly -6% in April with the familiar culprits being blamed – surging material costs and low inventories. Builders unfortunately are struggling to increase new home supplies because of the exact same reasons, with shortages and higher costs extending to everything from lumber to new appliances.

It’s also worth noting that Consumer Confidence pulled back a bit in May, the first decline in six months with worries growing around inflation and future job prospects.

There is no significant economic data today but investors will hear from Federal Reserve Vice Chair of Supervision Randal Quarles. During a Senate Banking Committee hearing yesterday, Quarles said the Fed along with the FDIC is in “a sprint” to research and develop a regulatory framework for cryptocurrencies and digital assets pertaining to banks, noting they are still in the early stages.

Technical analysis

In the absence of a swing signal in SP500 futures, it makes sense to stick to day trading. Advanced Decline Line is bullish, while Insider accumulation is weak. At the same time, the Interest rate Forecast and Fed Funds Forecast are neutral. In other words, SP500 is a mixed bag in terms of swing trading.

For today, the neutral zone is 4155.75 – 4220.50. Middle-strength level within this range – 4188; weak levels – 4172 and 4204.25. If the price holds above 4220.50, look for 4236.75 (weak level) and 4253 in extension (middle-strength level). If 4155.75 breaks, the magnets are 4139.75 and 4124 accordingly. Note, mentioned levels should turn into support/resistance before taking a trade.

SP500 Traders Track Consumer Spending Dynamic by Inna Rosputnia

Wishing you a great week!