Stocks Hold Their Ground as a New Quarter Begins and Sentiment Improves

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Stocks could be trying to break out as improving sentiment draws buyers to new parts of the market.

The S&P 500 slid 0.1 percent in the holiday-shortened period between Friday, March 31, and Thursday, April 6. It was the first drop in the last four weeks as the index pauses near a potential resistance zone. There was also rotation into large health-care stocks as investors targeted companies with less recession risk.

Key readings of employment, manufacturing and services missed estimates last week. While it may sound bearish — combined with the banking crisis — the weaker data pushed down interest rates and reduced fears of aggressive hiking by the Federal Reserve. That could mean the biggest cloud hanging over the market is clearing.

Consider the weekly survey of the American Association of Individual Investors. One-third of respondents now expect gains in the next six months, up by 14 percentage points in three weeks. It was the biggest increase since late 2021. Are money managers starting to feel optimistic again?

Healthcare Surges

Biggest Gainers in the S&P 500 Last Week
UnitedHealth (UNH)+8.5%
Eli Lilly (LLY)+7.2%
Humana (HUM)+7.1
ConocoPhillips (COP)+7.1%
Molina Healthcare (MOH)+6.8%
Source: TradeStation Data

Healthcare rallied last week after lagging early in the year. One catalyst was the government’s decision to increase Medicare reimbursement rates for health insurers. Johnson & Johnson (JNJ) also rose on renewed hopes of its settling talc-related lawsuits. Eli Lilly (LLY) reported positive data for its experimental Alzheimer’s drug remternetug.

The outperformance of healthcare could be important for at least two reasons. First, it’s a non-cyclical sector with less risk in a slowing economy. Second, it could be seeing investor rotation as the new quarter begins.

Precious metals and utilities rose as well last week. They also benefit from weaker economic data and lower interest rates. Energy jumped after OPEC+’s surprise decision to cut oil production.

Alphabet (GOOGL) was another big gainer after CEO Sundar Pichai said its search engine will include AI chat functionality.

Economically sensitive groups like industrials and consumer discretionaries performed the worst. Tesla (TSLA) was a noteworthy laggard as investors worried about weak vehicle demand and price cuts.

S&P 500, daily chart, with select indicators and levels.

Charting the Market

The S&P 500 could be squeezing into a tight range between potential support and resistance.

Below the current price are the peaks of March 6 (at 4078) and March 22 (at 4039). Next is the 50-day moving average at 4029. Traders may look for prices to hold one of these levels. (The 50-day MA could be especially important because it’s often viewed as an signal for the intermediate-term trend.)

To the upside is a falling trendline along the peaks of August and February.

Another indicator is Cboe’s Volatility Index ($VIX.X), which typically moves in the opposite direction as stocks. The VIX briefly jumped in mid-March as Silicon Valley Bank and Credit Suisse collapsed, but it quickly returned under 20.

The Week Ahead

This week has a mix of events. Wednesday could be the most important session because it has inflation data and Fed news.

Biggest Decliners in the S&P 500 Last Week
MarketAxess (MKTX)-12%
Albemarle (ALB)-12%
Tesla (TSLA)-11%
Deere (DE)-10%
United Rentals (URI)-10%
Source: TradeStation Data

Nothing important is scheduled for today.

Chicago Fed President Austan Goolsbee, a new voting member of the interest-rate committee, speaks tomorrow.

Wednesday features the consumer price index (CPI) inflation report at 8:30 a.m. ET. Minutes from the last Fed meeting follow at 2 p.m. Ethereum’s Shanghai upgrade, which will complete the cryptocurrency’s transition to a proof-of-stake model, is also expected to occur.

Thursday brings the producer price index (PPI), initial jobless claims and Delta Airlines (DAL) earnings.

Friday is the first big session of the reporting season. Results are due from JPMorgan Chase (JPM), Citi (C), UNH, and Wells Fargo (WFC).

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