Stocks Eye Key Resistance as the Fed Looks to Slow Interest Rate Hikes

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Stocks are eying key resistance as the market attempts its second straight positive month.

The S&P 500 rose 1.5 percent in the holiday-shortened week between November 18 and November 25. The index is up 4 percent so far in November. If the gains hold through Wednesday, it would be the first back-to-back winning months since July and August of 2021.

“A substantial majority” of policymakers think the Federal Reserve should raise interest rates by only 50 basis points at its December 14 meeting, the central bank said last week. The statement appeared in minutes from the October meeting, which added that time “lags complicated an assessment of the effects of monetary policy.” Both concepts were new and could support less-aggressive monetary policy after four straight hikes of 75 basis points.

Initial jobless claims additionally rose more than expected to their highest level in four months. (The increase followed prominent layoffs in Silicon Valley.) Further weakness in the labor market could also support easier Fed policy.

New-home sales and durable-goods orders also surprised to the upside. Could investors be facing a “soft landing” — lower inflation without a job-killing recession? (Mortgage rates have dropped at least half a percentage point since October, which could further support housing.)

Metals, Bonds Climb

Biggest Gainers in the S&P 500 Last Week
Best Buy (BBY)+13%
Steris (STE)+8.8%
Ross Stores (ROST)+7.8%
Walt Disney (DIS)+7.7%
Fidelity National Information (FIS)+7.4%
Source: TradeStation Data

Assets that could benefit from lower rates, like bonds and homebuilders, climbed last week. Utilities rose the most among the major sectors, according to TradeStation data. Metals, including steelmakers and gold miners, rallied as well. Energy stocks fared the worst as crude oil continued to slide.

Best Buy (BBY) was the latest traditional retailer to jump on strong quarterly results. Walt Disney (DIS) also rallied on news that Bob Iger would return as CEO.

Charting the Market

Last week showed further technical improvements from the preceding week. The number of S&P 500 members above their 200-day moving average rose to 304 from 274. (That could signal improving breadth.) The price range also narrowed to 101 index points from 122 points. (That may suggest waning volatility.)

The reduced movement comes as the S&P 500 squeezes in a potentially important range. To the downside, it’s held the important 3910 level. Above are the price gap from September 13 and its 200-day moving average.

It’s the second challenge of the price gap in less than two weeks, which could suggest traders expect a breakout. The 200-day MA is also potentially important because it marked the top in August.

Some chart watchers could also notice the series of higher lows as prices challenged resistance. Has a bullish “ascending” triangle taken shape?

S&P 500, daily chart, showing selected features.

The Week Ahead

This week features several important economic events and a handful of earnings.

Today is relatively quiet.

Consumer confidence is due tomorrow, along with earnings from Intuit (INTU).

Wednesday’s big items are ADP’s private-sector payrolls report in the premarket and a speech by Fed Chair Jerome Powell at 1:30 p.m. ET. Other items include crude-oil inventories, revised gross domestic product, pending home sales and Salesforce.com (CRM) results.

Thursday has jobless claims and personal income and spending, which includes the important Personal Consumption Expenditures (CPE) inflation gauge. Dollar General (DG), Ulta Beauty (ULTA) and Kroger (KR) report earnings.

The last big event is non-farm payrolls on Friday morning.

Biggest Decliners in the S&P 500 Last Week
Dollar Tree (DLTR)-7.4%
Rollins (ROL)-5.8%
Estee Lauder (EL)-5.8%
PayPal (PYPL)-5.6%
Schlumberger (SLB)-4.9%
Source: TradeStation Data

The economic data — especially items like CPE and unemployment — could be watched for confirmation of the Fed’s softer stance. That could make traders believe “good news is bad.” (That’s when bulls embrace weak economic data as a potential signal of rates staying lower.)

Powell’s speech will also be closely watched for confirmation of the message in last week’s minutes.

China could be another potential catalyst this week as anti-lockdown protests sweep major cities like Beijing and Shanghai.

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