Stocks Just Defied the Bears as Attention Shifts from Inflation to Earnings Season

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Stocks are holding their ground as attention shifts from inflation to earnings season.

The S&P 500 fell 0.9 percent between Friday, July 8, and Friday July 15. At one point the index was down as much as 4.6 percent, but prices rebounded and stayed within their range for the month.

Inflation remained the big story when the week began. Higher energy costs lifted the consumer price index (CPI) and producer price index (PPI) more than forecast. But interest rates still declined and gasoline prices continued their slide since the inflation data was collected in June. Does the market think inflation has already peaked?

There were other positives in the data. Consumer sentiment for the current month of July unexpectedly improved as Americans saw fewer price increases over the next year. Retail sales surprised to the upside and the New York Federal Reserve’s Empire manufacturing index (also July) showed multiple improvements on the inflationary front.

Could that help slow the price spiral?

James Bullard of the Fed

Equities sank in the middle of last week after the soaring CPI and PPI numbers. At one point, bond markets even priced in a 100-basis point interest-rate hike at the next Fed meeting on July 27. Then an interview with voting member James Bullard appeared on the Japanese news wire Nikkei.

“I think we’re on a good pace, for now,” said Bullard, who’s also president of the St. Louis Fed. He added that a 75-basis point interest rate hike at the July 27 meeting “has a lot of virtue” and “would get us all the way till the long run neutral value.”

Biggest Gainers in the S&P 500 Last Week
Southwest Airlines (LUV)+7.8%
Citigroup (C)+6.7%
United Airlines (UAL)+6.3%
NXP Semiconductors (NXPI)+6.3%
Boeing (BA)+6.2%
Source: TradeStation Data

That comment was especially noteworthy because Bullard has been the Fed’s top hawk this year. He prominently opposed Chairman Jerome Powell by demanding faster hikes in February, declaring that policymakers’ credibility was “on the line.” He maintained that stance in following months as the position became the mainstream. Does that make his new moderation important?

Energy Falls Again

Energy was the worst-performing sector last week as crude-oil futures (@CL) slid another 7 percent. Software makers, Chinese Internet stocks and precious metals also fell more than the broader market.

Semiconductors rose the most, fueled by Taiwan Semiconductor’s (TSM) strong results. Airlines and home builders also gained.

Citigroup (C) jumped on a better-than-expected quarterly report. Boeing (BA) advanced after delivering more than 50 aircraft in June — a feat it hadn’t accomplished since March 2019. Investors are also waiting for more news on its 737 MAX and 787 Dreamliner.

Dating-service operator Match (MTCH) was the S&P 500’s biggest decliner amid a legal fight with Alphabet (GOOGL) over Play Store billing. ServiceNow (NOW), the software firm that flourished during the pandemic, fell after CEO Bill McDermott suggested customers are reducing IT investments. Enphase Energy (ENPH) and SolarEdge (SEDG) also fell after Senator Joe Manchin blocked green-energy initiatives.

S&P 500, daily chart, showing key events and patterns.

Charting the Market

The S&P 500 dipped under 3723 for a few moments last Thursday morning before rebounding. It was the third straight week that prices held their March 2021 low. That could mean the index has made a higher low in July after six months of steady declines. The price action could also be interpreted as a false breakdown.

Attention could now focus on the falling trendline along the highs of late April and early June. Recent highs around 3920 could be the next important area for traders eying a breakout.

The Week Ahead

This week’s agenda shifts awareness toward housing data and corporate earnings. More than 60 of the S&P 500’s members issue quarterly results.

Bank of America (BAC) and Goldman Sachs (GS) report before the opening bell. NAHB’s homebuilder sentiment index follows at 10 a.m. ET and International Business Machines (IBM) announces in the postmarket.

Biggest Decliners in the S&P 500 Last Week
Match (MTCH)-13%
ServiceNow (NOW)-12%
Enphase Energy (ENPH)-10%
SolarEdge (SEDG)-9.9%
APA (APA)-8.2%
Source: TradeStation Data

Johnson & Johnson (JNJ) is due tomorrow morning, along with housing starts and building permits. Netflix (NFLX) is the in the afternoon.

Existing home sales, crude oil inventories and Tesla (TSLA) results are some big items Wednesday.

Thursday features initial jobless claims and companies like American Airlines (AAL), AT&T (T) and Snap (SNAP).

Friday’s important names include American Express (AXP) and Verizon Communications (VZ).

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