What To Trade This Week? Fundamental & Technical Analysis

Inflation in the U.S. has spiked as much as +5% by some measures, with only slim signs of relief on the horizon. The latest ISM Purchasing Managers Index showed input prices rose for the thirteenth month in a row in June. ISM says record-long lead times, shortages of raw materials, and transportation difficulties also continue to hinder production across all segments of the manufacturing economy. Virtually all basic and intermediate manufacturing materials are experiencing price increases as a result of product scarcity and the dynamics of supply and demand, according to ISM.

The good news is that some manufacturing backlogs and transportation challenges have eased a bit. And in spite of the difficulties, manufacturing continues to expand at strong levels amid increasing demand. Businesses and consumers alike are looking at substantially higher energy prices this summer with oil prices popping back above the $75 mark last week.

What to expect this week?

Turning to this week, keep in mind markets are closed Monday in observance of July 4th, so there are only four full trading days. The week is typically a slower one for markets with a lot of people using the holiday to take an extended break.

Economic data this week is very slow with just ISM Non-Manufacturing on Tuesday and Consumer Credit on Thursday. Looking a little further out, the week of July 13 brings the “unofficial” start of second-quarter earnings season.

Analyst expectations for S&P 500 earnings growth is nearly +62%. Some analysts are worried about a steep slowdown in earnings growth thanks to elevated year-ago comparisons and continued fallout from massive supply chain dislocation. There are also questions as to whether earnings will continue to surprise to the upside and whether those “beats” will be enough to keep the bulls excited.

Stock bulls of course believe there is plenty of room for further growth ahead. U.S. consumers, whose spending accounts for two-thirds of U.S. GDP, have built up $2.6 trillion in “excess savings” according to a Moody’s.

Consumer spending in the second half of the year is expected to continue shifting more toward services rather than goods. However, there is still a lot of pent up demand for goods, especially those that have been in short supply (cars, electronics, lumber) so this shift may not play out as dramatically as some expect. Meanwhile, the services sector is still suffering from a severe labor shortage that will likely take many months to level out, meaning the amount of money flowing into services could remain limited because of supply constraints.

The supply constraints for both goods and services also means that consumers will be forced to spend all this “excess” cash more slowly, which many economists argue is actually better for economic stability in the long run.

For what it’s worth the S&P 500 has posted 34 new all-time highs during just the first half of 2021.

What To Trade This Week? Fundamental & Technical Analysis by Inna Rosputnia

Wishing you a great week!