Investors are eyeing a potential rebound in the S&P this week after three consecutive weeks of losses as the busiest week of the earnings season kicks off.
The biggest names in tech are reporting their quarterly results this week, starting off with Tesla (NASDAQ: TSLA) on Tuesday, followed by Meta (NASDAQ: META) on Wednesday and Microsoft (NASDAQ: MSFT) and Alphabet (NASDAQ: GOOG) on Thursday.
It comes as markets have gone through a 5% correction over the past few weeks, a phenomenon that Jay Woods, chief global strategist at Freedom Capital Markets notes typically occurs three times annually.
“The question now becomes is this a garden variety correction or is there something more to it?” Woods asks in his weekly newsletter.
Alongside earnings reports dominating the week, attention is also drawn to geopolitical tensions in the Middle East, the impact of the Bitcoin halving, and the Federal Reserve’s interest in the Personal Consumption Expenditures (PCE) gauge, favoured for its broad spending coverage.
On the economic front, the PCE index, the Fed’s preferred inflation measure, is expected to exhibit a modest decline. Data in line with expectations may diminish prospects of a rate cut by June, as other economic indicators have shown resilience.
The Bitcoin halving event also commands attention, historically coinciding with significant increases in cryptocurrency value post-event, though outcomes remain unpredictable.
Earnings season takes center stage. Other major corporations like Verizon, Visa, and Boeing are reporting, but it’s Tesla that has faced consistent challenges recently. Technical analysis indicates critical support and resistance levels for key stocks, with market reactions often swaying prices unpredictably, particularly in the aftermath of earnings calls.
Amidst geopolitical tensions, lukewarm earnings reactions, and Federal Reserve statements, the market experienced its worst week since October 2022, notably impacting the Nasdaq. Fed officials’ cautious stance on rate cuts, alongside spikes in the 10-year yield, adds uncertainty to market dynamics, especially concerning semiconductor stocks.
Airlines and healthcare sectors showed resilience amidst the challenging market conditions, while technology stocks faced significant downturns, primarily driven by semiconductor sector weakness.
All told market sentiment remains tepid, lacking the panic and dramatic reversals indicative of a solid bottom formation. The absence of pronounced market breadth negativity suggests a prolonged consolidation phase rather than swift reversals.
These levels could suggest a buying opportunity, according to Woods.
“If we can’t recapture the 5,000 mark this week, then another leg lower is probable. Downside targets of 4,800 are likely. That would bring the index almost even for the year and back to its old resistance levels prior to our latest rally,” he writes.
“If momentum surges to the downside this would likely be a great buying opportunity. A 10% drop takes us to the 200-day moving average at 4,674. Any washout to this level and below brings us to a great area of support around 4,600 and a great place for dip buyers to jump in.”
