Stock Market Breadth
This week has been mainly about the Fed, the US GDP data and US corporate earnings. Investors had a lot of information to digest, and overall sentiment has been positive. Speaking from a monetary policy perspective, we are in a scenario where bad news is good news, which means that the Fed will not take aggressive measures toward its monetary policy. For instance, yesterday’s GDP numbers for the US economy were as dire as they could have been, but if you look at the stock market, we saw a decent rally. All the major US stock indices are on track to post gains for the week. As for the corporate earnings, the message is that companies are cutting their head counts or being immensely cautious with their hiring approach, and this means that the labour market, which has been doing well so far, could begin to show weakness soon.
On the geopolitical front, we have seen more geopolitical tensions building as the US has stated to touch the sensitive nerve of China, and that is Taiwan. Under the current war between Russia and Ukraine, investors do not want to see another political conflict that could potentially lead to further heightened geopolitical tensions.
The dollar index took some beating this week, and it will likely continue to move to the downside today as the Fed has signalled that future interest rate hikes will not be that aggressive. The next interest rate hike will likely be 50 basis points or even lower if the upcoming economic numbers show more weakness. The main event will be the US NFP number due next week.
The weakness in the dollar index has supported the currency pairs such as the EUR/USD and the GBP/USD, which have been under selling pressure for weeks. The EUR/USD is on track to post the second consecutive week of gains, but traders should not make any mistake that European fundamentals are much weaker than the US. So the current rally in the Euro is unlikely to last. As for the GBP/USD, we have seen serious gains for the currency, but we are not that sure if this momentum will last. The country is facing political turmoil, and investors do not clearly know who will become the UK’s next Prime Minister and what economic policies will be.
Brent and Crude oil prices are struggling to move higher due to concerns around oil demand. Brent oil is currently struggling to move higher, and we will likely see a move below the $100 mark. Although, if you look at the overall weekly performance for Brent and Crude oil prices, we are looking at decent gains, but investors aren’t fully committed. As for the supply side. OPEC+ is unlikely to increase the supply substantially, and so far, the message confirms that there may only be a marginal increase in their next meeting.
Bitcoin prices are moving higher, mainly because of the weakness in the dollar index; as we mentioned earlier this week, the correlation with the dollar index is the dominant factor here. The Fed is done with the aggressive interest rate hike, which means that we are likely to see better moves for the BTC prices. But investors need to understand that the BTC price needs to cross above the 30K price mark for us to have real clarity that the bull run is here.
The Asian stock market mainly traded lower on the week’s last trading day. The Nikkei index dropped by 0.29%. The HSI index decreased by 2.30%, while the KOPSI index increased by 0.39%. The Shanghai index fell by 0.72%.
Dow Jones and S&P 500: Market Breadth
The Dow Jones’ market breadth gained further momentum. 48% of the Dow Jones stocks are trading above their 200-day moving average.
The S&P 500 stock breadth also confirmed some more strength in its momentum. 49% of the shares traded above their 200-day moving average.
Dow Jones Futures Today
The Dow Jones futures are trading higher today. In terms of economic data, investors will be looking at the US Core PCE Price index and Personal Income and Spending numbers. The Core PCE index will be coming out at 12:30 GMT, with a forecast of 0.5%. The Personal Income and Spending numbers will be released simultaneously, and the forecasts are 0.5 and 0.9%, respectively.
The Dow Jones futures are trading lower, and the index has finally succeeded in breaking above the 50-day SMA and 100-day on the daily time frame, which is a bullish signal. The fact the price has crossed above these SMAs is a sign of encouragement for the bulls, and as long as this lasts, the path of least resistance remains skewed to the upside.
As for the RSI, it indicates that prices are nearly overbought on the daily time frame. Currently, the RSI is trading at 68.
The near-term support is 31,822, while the resistance is 33,702.
Stock Market Rally
The S&P 500 stock index closed higher on Thursday, increasing by 1.21%. The industrial sector led the index higher, and all the 11 sectors closed higher yesterday.
The Dow index increased on the second last trading day of the week; the Dow stocks moved the index higher by 1.03%. Twenty-five shares advanced, while five shares closed lower.
The tech-heavy index’s NASDAQ composite closed higher by 1.08% yesterday.
S&P 500 Leaders and Laggards: Constellation Energy and Stanley Black
Constellation Energy stock contributed the most significant gain, soaring 16.7%. Stanley black stock was the most considerable drag; it fell by 16.06%. The S&P 500 stock index is down 15% so far this year.
Dow Jones Leaders and Laggards: Nikkei and Travelers Company
Nikkei provided the most significant help for the Dow Jones; it advanced by 4.052%, while Travelers Comp was the largest decliner, it fell by 2.02%.