Stocks Hold a Potentially Key Level as Fed Takes a Less Hawkish Stance

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Stocks could be trying to stabilize as investors look for the Federal Reserve to stop raising interest rates.

The S&P 500 rose 1.4 percent between Friday, March 17, and Friday, March 23, its second straight positive week. The index has moved sideways for the past 10 months. It could also be holding support at a key level. (See Charting the Market below.)

The Fed hiked interest rates by 25 basis points but didn’t increase projections for future tightening. That potentially marks an end to the central bank’s historic yearlong battle against inflation. The change could remove one of biggest headwinds weighing on stocks. Last week saw few other important U.S. economic events.

The other big story was continued turmoil in the banks following the collapses of Credit Suisse, Silicon Valley Bank and Signature Bank. Still, overall declines slowed compared with the previous two weeks. The industry is likely to remain in focus this week as regulators appear in Congress tomorrow and Wednesday. Could their testimony help restore confidence?

CME FedWatch tool showing estimated rates at the July 26 meeting. Notice the the drop in expectations over the past month.

Nasdaq Leads Again

Top Gainers in the S&P 500 Last Week
Regeneron Pharmaceuticals (REGN)+9.7%
Match (MTCH)+9.5%
Accenture (ACN)+8.8%
Apache (APA)+8.7%
Netflix (NFLX)+8.2%
Source: TradeStation Data

The Nasdaq-100 led with a 2 percent gain, following a historic outperformance the previous week. Big growth stocks including Tesla (TSLA), Meta Platforms (META) and Nvidia (NVDA) pulled the index higher. TSLA benefited from a credit upgrade by Moody’s and optimism about overseas sales. NVDA benefited from ongoing excitement over Artificial Intelligence (AI).

META received positive commentary from analysts at Morgan Stanley, Piper Sandler and KeyBanc based on several catalysts: Cost cuts are expected to boost profits and its Reels service could benefit as TikTok faces political pressure. There was also optimism about a rebound in online advertising.

Netflix (NFLX) had its best week of the year after launching new videogames. Some analysts also predicted stronger subscription growth as the company tightens rules against password sharing. Regeneron Pharmaceuticals (REGN) was the biggest gainer in the S&P 500 after announcing positive late-stage data for its Dupixent heart drug.

Solar-energy companies were another strong group last week. Chinese stocks and gold miners also gained as the Fed’s dovish stance boosted weak-dollar trades.

Real estate investment trusts, utilities and airlines were the worst performers.

S&P 500 daily chart, with select indicators. Notice how MACD turns often preceded directional changes in the index.

Charting the Market

Last week could be important because the S&P 500 jumped above its 200-day moving average. It then retested and held the line, which may suggest the longer-term has turned more positive. Prices also held a 50 percent retracement of their rally between March 13 and March 22.

Next, the index hit resistance at a falling trendline that started early last month. Traders may next watch that line for a potential breakout. Another signal that could matter is the recent upturn in the moving average convergence/divergence oscillator (MACD).

Top Decliners in the S&P 500 Last Week
First Republic Bank (FRC)-46%
Comerica (CMA)-7.3%
Advance Auto Parts (AAP)-7.2%
CBRE (CBRE)-6.8%
Digital Realty Trust (DLR)-6.3%
Source: TradeStation Data

Investors may additionally notice moves in the interest-rate market after Treasury yields hit six-month lows. In particular, the two-year Treasury yield fell more than 1 percentage point under six-month T-bills. That inversion (the steepest in at least 29 years) suggests traders expect the Fed to cut rates before tightening further. That may satisfy a comment in October by famed trader Paul Tudor Jones, who said short-term rates would fall before stocks turn higher.

The Week Ahead

This week brings an unusual mix of news, with bank hearings and speeches by new Fed members. Given broad pessimism, some contrarian traders may watch for the events to calm nerves. Could bank fears ease at the same time policymakers signal a dovish turn?

Philip Jefferson, who joined the Board of Governors last year, speaks after the close this evening.

Michael Barr, another governor, appears tomorrow morning. Tuesday also marks the beginning of bank hearings in the Senate and consumer confidence is due. Micron Technology (MU), announces quarterly results in the only noteworthy earnings report this week.

Wednesday brings pending home sales and crude oil inventories. Bank hearings move to the House of Representatives.

Initial jobless claims are on Thursday.

Consumer price expenditures (CPE) inflation data for February, the most important economic report of the week, is due on Friday morning.

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