Can Stocks Break Their Losing Streak as Attention Shifts Away From Inflation and the Fed?

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Bearishness continues to run high in the stock market, but some traders may expect a bounce.

At one moment last week, the S&P 500 was down 6.4 percent. That would have been the sharpest drop since March 2020, but it turned on Thursday afternoon and cut the loss to 2.4 percent. The Nasdaq-100 had a similar change after clawing back from a 7.9 percent slide. Both indexes also hit new 52-week lows and are mired in their longest losing streaks in a decade.

Biggest Gainers in the S&P 500 Last Week
Viatris (VTRS)+11%
Electronic Arts (EA)+8.4%
International Flavors & Fragrances (IFF)+8.2%
Duke Realty (DRE)+7.8%
Etsy (ETSY)+6.6%
Source: TradeStation Data

Consumer prices rose 8.3 percent in April, the second highest reading in a generation and slightly more than forecast. Factset also noted that a record 85 percent of companies reporting earnings this quarter said inflation is affecting their businesses.

The trend has created a wall of negativity as worry portfolio managers worry about the Federal Reserve hiking interest rates. For example, the National Association of Active Investment Managers reported its members had the smallest allocation to stocks since April 2020. Other sentiment gauges recently showed historic levels of pessimism.

Charting the S&P 500

Sharp rebounds followed prior extremes of fear, like March 2009 and March 2020. Some contrarians may see potential for a similar recovery because of technical patterns on the price charts.

First, the S&P 500 came within five points of its low on March 25, 2021, before bouncing. Will that level now be viewed as support? Second, the index is back to its 100-week moving average (a long-term trend indicator) for the first time in two years.

Next, Cboe’s Volatility Index (VIX) declined for the second straight week and made a lower high than March. That may suggest that fear has peaked.

Fourth, the transportation stocks briefly hit a new low for the year but quickly rebounded. Classic “Dow Theory” would interpret that as “non-confirmation” of the broader market’s lows.

Finally, the 10-year Treasury yield made a higher high and lower low on its weekly chart. Such a bearish “outside candle” is a potential reversal pattern. That could be important for growth stocks and the Nasdaq-100, which tend to struggle at times of rising rates.

S&P 500, weekly chart, with key technical events and 100-week moving average.

Twitter Plunges

Social-media company Twitter (TWTR) was the the biggest gainer in the S&P 500 two weeks ago on a proposed takeover by Elon Musk. It led the decliners last week after the billionaire paused the deal.

Boeing (BA) was the second-worst performer after Reuters cited problems with its 787 Dreamliner. This time, the Federal Aviation Administration reportedly found omissions in a key document needed to resume deliveries of the aircraft.

Every major sector lost value last week, aside from consumer staples. Real-estate investment trusts were the biggest decliners. Cruise ships, airlines, solar energy and metal producers slid as well.

Last week was also bearish for cryptocurrencies like Bitcoin, which fell below $26,000 for the first time since December 2020 before recovering.

Bonds, emerging markets and semiconductors outperformed.

Fed and Consumer News This Week

Interest rates could remain a theme with Fed Chairman Jerome Powell speaking at 2 p.m. ET tomorrow. CME’s FedWatch tool currently shows the market anticipating a 50-basis point increase on June 15. Traders will probably watch for more details on that expectation.

Biggest Decliners in the S&P 500 Last Week
Twitter (TWTR)-18%
Boeing (BA)-15%
Signature Bank (SBNY)-14%
Westrock (WRK)-13%
Synchrony Financial (SYF)-12%
Source: TradeStation Data

Other events this week focus on the consumer sector.

Retail sales are due tomorrow morning, along with quarterly results from Home Depot (HD) and Walmart (WMT). NAHB also releases its monthly homebuilder index.

Housing starts, building permits and crude-oil inventories follow on Wednesday morning. Target (TGT), Lowe’s (LOW) and TJX (TJX) report earnings before the opening bell. Cisco Systems (CSCO) is slated for the postmarket.

Thursday bring initial jobless claims and existing-home sales. Semiconductor-equipment company Applied Materials (AMAT) and cybersecurity firm Palo Alto Networks (PANW) issue their numbers in the afternoon.

Deere (DE) results conclude the week on Friday morning.


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